Share Incentive Plan (SIP)

A Share Incentive Plan (SIP) is an HMRC tax-advantaged scheme in which the employer establishes a UK trust that holds shares on employees' behalf. There are four share routes: Free shares (gifted, up to £3,600 per year), Partnership shares (bought from pre-tax salary, up to £1,800 per year or 10% of salary), Matching shares (free shares awarded in proportion to Partnership shares, up to 2:1) and Dividend shares (dividends reinvested in further shares).

If shares are kept in the SIP trust for at least five years, employees pay no income tax or NI on them at all, even on their growth in value. Withdrawals between three and five years trigger income tax and NI on the lower of original cost and market value at withdrawal. Capital Gains Tax only arises if shares are sold after leaving the plan and after a further rise in price.

Worked example: Oliver buys £150 of Partnership shares each month from gross salary (saving 32% in combined tax and NI), and the employer adds one Matching share for every Partnership share. After five years he has paid in £9,000, accumulated £18,000 of shares at cost, and pays no income tax on withdrawal. SIP deductions appear on the payslip as a salary-sacrifice-style entry, reducing taxable pay; matching and free awards appear in the year-end share statement rather than the monthly payslip.