Ulster Bank large transfers and transfer limits
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What does ESPP mean?
Disclaimer: The information in this article is for general informational purposes only and does not constitute financial, tax, or legal advice. See full disclaimer.
Looking for a new role, and comparing the company benefits on offer? One important one to consider is an equity compensation plan like an Employee Stock Purchase Plan (ESPP).
This guide runs through what an ESPP is and how it works, along with essential info on tax treatment, and the pros and cons of these schemes.
We’ll also show you how to avoid high FX costs when receiving returns from stock sales, using a clever multi-currency solution like the Wise account.
What is an ESPP?
An Employee Stock Purchase Plan (ESPP) is an employee benefits scheme offered by a company. It’s voluntary, where employees can opt in to buy company shares at a discounted rate of 5% to 15%.¹
While this kind of scheme is used in the UK, it and other schemes such as incentive stock options are much more prevalent in the US.
In the UK, ESPPs are typically used as an employee benefit by US-headquartered multinational companies or larger listed firms with employees in the UK.
What is a Performance Share Unit (PSU): Explained for UK professionals
How does an ESPP work?
1: The employee enrols in the ESPP scheme
If an ESPP scheme is offered at a company, employees have the choice whether to participate or not. If they do want to join, they’ll enrol in the scheme and agree to contribute a proportion of their salary each month for a set period.
While it does mean the employee needs to wait in order to own the shares, it’s not the same as a vesting period - find out more about how these work here.
A purchase date will be specified, which is when the employee can buy their shares.
2: Funds are accumulated through payroll deductions over a set period
As per the ESPP agreement, a proportion of the employee’s salary will be automatically taken by the company each month. Most ESPP schemes have a maximum limit (either a maximum percentage of salary each month or a maximum total), and the contribution amounts will be specified when enrolling in the scheme.
These funds are set aside, to be used to buy stock on the purchase date.
3: The funds are used to buy company shares at a discounted rate
On the purchase date, the company uses the accumulated funds to buy stock at the discounted rate - this varies by company, but is usually between 5% and 15%.¹
4: The shares are held in a brokerage account or sold
The shares are deposited in a brokerage account, where the employee can then choose to hold or sell them.
What’s the difference between an ESPP and ESOP?
There are lots of different types of equity compensation plans available in the UK, so it’s easy to mix them up.
Two that often cause confusion are ESPPs and ESOPs.
An ESOP is an Employee Stock Ownership Plan, and it differs from an ESPP in that it is a company-granted benefit where the employee pays nothing at all. They receive shares or rights to shares (often in the form of Restricted Stock Units or RSUs) in the place of a cash bonus.
With an ESPP, the employee can voluntarily contribute a proportion of their salary each month for a set period, as a way of building up funds so they can buy shares.
So with an ESOP, shares are gifted to the employee. With an ESPP, the employee buys the shares (and the company gives them a discount).
How are ESPPs taxed in the UK?
ESPPs are subject to two different kinds of tax in the UK - income tax, and Capital Gains Tax (CGT):¹
- When they’re bought - the discount you receive on the shares is viewed as a taxable benefit, so may be subject to income tax and National Insurance (NI).
- When they’re sold - any profit you make (the difference between the purchase price and sales price) may be subject to Capital Gains Tax (CGT). It’s worth remembering though that everyone has a CGT personal allowance (known as an Annual Exempt Amount) of up to £3,000 a year.²
Some types of employee stock options are given favourable tax treatment by HMRC, but unfortunately ESPPs are generally considered outside of these tax-advantaged schemes.
Tax can be extremely complicated, so it’s always recommended to seek professional advice to help you understand your obligations.
RSUs vs stock options: guide for UK employees
Pros and cons of ESPPs for employees
Pros:
- Discounts on the market price of stock
- Automatic savings - contributions are taken automatically from the employee’s salary, providing a disciplined, convenient way to save and invest
- Potential for returns if the stock appreciates in value
- Some plans include a ‘look-back’ feature, which compares the share price at the beginning and end of the set period and uses the lower price to determine the purchase price.
Cons:
- Reduced take-home pay
- Funds are locked away - unlike a savings account, it’s not usually possible to access any funds held in an ESPP and they can only be used for purchasing stock.
- Most ESPP schemes are not subject to favourable tax treatment in the UK.
After reading this guide, you should have a better understanding of how ESPPs work, how they differ from other employee share schemes and how they are typically taxed in the UK. If you're considering joining an ESPP, it may be worth seeking professional financial or tax advice to understand how the scheme fits your wider financial goals.
Receiving ESPP payouts internationally with Wise
If you decide to sell your shares, you need to decide on the most cost-efficient way to receive your returns.
It’s likely that if you work for a US-based employer, they’ll use a US brokerage - and this means that returns may be paid in US dollars (USD). This could mean you lose out to poor FX rates and high fees once the currency is converted into pounds (GBP).
This is where having a Wise account is a smart move. It gives you access to account details in 8+ major currencies, including USD.
This allows you to receive money directly in USD, then convert into GBP when you’re ready - for low fees* and mid-market exchange rates. This could mean you keep more of your returns.
Sources used:
- Financial Advisers - Understanding Employee Share Schemes: RSUs and ESPPs
- GOV.UK - Capital Gains Tax: what you pay it on, rates and allowances
Sources last checked 15-May-2026
*Please see terms of use and product availability for your region or visit Wise fees and pricing for the most up to date pricing and fee information.
This publication is provided for general information purposes and does not constitute legal, tax or other professional advice from Wise Payments Limited or its subsidiaries and its affiliates, and it is not intended as a substitute for obtaining advice from a financial advisor or any other professional.
We make no representations, warranties or guarantees, whether expressed or implied, that the content in the publication is accurate, complete or up to date.
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