Share Incentive Plans (SIPs)
This is the most tax efficient scheme (although with a heavy administrative
burden). Employers receive Corporation Tax relief for establishing,
contributing to and administrating the SIP. The SIP must be open to all
There are three main types of plan:
• employers can give staff up to £3,000 worth of free shares a year;
• each year, employees can buy a further £1,500 worth of partnership shares
from their gross salary, or up to 10 per cent of gross salary, whichever is
• employers can give up to two matching shares for every share the employee
All shares are held in a trust. Share dividends can also be held in the
trust. Dividends worth up to £1,500 in any given tax year can be reinvested
in new shares, as long as they are held for a minimum of three years.
No income tax or National Insurance Contributions (NICs) are payable if the
shares are held in the SIP for five years. Shares are free of capital gains
tax (CGT) when they are taken out of the trust. If shares are taken out of
the trust after five years and then sold at a later date, CGT may be
payable on any increase in value between the date when the shares were
taken out of the trust and the date of sale.
If employees leave the business before shares have been held in the SIP for
five years, they:
• must pay income tax and NICs; and
• may have to part with free shares and matching shares.