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Share Incentive Plan

The Share Incentive Plan (SIP) is an all-employee share gifting or share purchase scheme.

Background

The SIP was introduced in the Finance Act 2000, alongside the Enterprise Management Incentive.

According to HMRC statistics, 820 UK companies operated SIPs in 2013–14.

Summary

The Share Incentive Plan has four modules – free shares, partnership shares, matching shares and dividend shares. Companies choose which they offer.

Under free shares, companies can gift up to £3,600 of shares to each employee every year. Under partnership shares employees can buy up to £1,800 of shares from their pre-tax salary each year. For each partnership share the employee buys, the company may give an additional two free shares using the matching shares module. Dividends from past years can be used to buy additional shares each year.

With all modules the shares must be held in a trust for a period of between three and five years before they are transferred into the employee’s ownership, free of income tax & NICs. However, as the employee has the rights to ownership from the beginning, there is some risk involved as the share price can fluctuate.

  • The SIP is an all-employee share gifting and share purchase scheme
  • The scheme consists of four modules: free shares, partnership shares, matching shares and dividend shares
  • The free shares module is a share gifting scheme under which a maximum value of £3,600 of shares can be awarded to an employee in each tax year
  • The holding period for these shares in a trust cannot be less than three years or more than five years
  • These shares can be awarded on the basis of performance
  • Under the partnership module, an employee can allocate up to £1,800 of pre-tax salary to be used to buy additional shares. There is no holding period for these shares
  • Matching shares are matched to an agreed ratio, which cannot exceed 2:1 to those already purchased under and only under the partnership shares module by the employee. This cannot apply to free shares
  • Dividend shares are bought using any dividend paid to shares held in trust under any of the other three modules

Further reading