What is a Share Incentive Plan (SIP)?

A Share Incentive Plan is an HMRC-approved employee share scheme that allows companies to give free shares or let employees buy partnership shares from pre-tax salary. Shares held in the SIP trust for 5 years are free of Income Tax and NI on withdrawal.

How much can an employer give in free shares?

Employers can award up to £3,600 of free shares per employee per tax year. These are given without any cost to the employee and are free of Income Tax and NI if held for 5 years.

What are partnership shares?

Partnership shares are bought by employees from their pre-tax, pre-NI salary. The maximum purchase is £1,800 per year (or 10% of salary if lower). This means employees get Income Tax and NI relief on the purchase.

What are matching shares?

Employers can award matching shares when employees buy partnership shares — up to 2 matching shares for every 1 partnership share purchased, capped at £3,600 per year.

What happens if I withdraw shares early?

If you withdraw free or matching shares within 3 years, they are subject to Income Tax and NI on their market value at withdrawal. Between 3 and 5 years, you pay tax on the lower of acquisition value or market value. After 5 years, there is no Income Tax or NI.

How do I calculate the NI saving on partnership shares?

Because partnership shares are purchased from gross salary (before tax and NI), you save Employee NI at 8% on the amount invested — in addition to Income Tax relief at your marginal rate.

Are dividend shares tax-free?

Dividends on SIP shares can be reinvested into additional dividend shares. These are tax-free if held for at least 3 years in the plan. They count towards the £3,600 free shares annual limit.

What is the effective cost of partnership shares?

After Income Tax and NI relief, the effective cost to a basic rate taxpayer is approximately 72p for every £1 of partnership shares purchased (£1 minus 20% tax minus 8% NI). For a higher rate taxpayer it is approximately 52p per £1.

What is the CGT position on SIP shares?

When SIP shares are eventually sold, any gain above the market value when shares leave the trust is subject to CGT. The base cost is the market value at withdrawal date, not the original acquisition cost.

Can I sell my partnership shares at any time?

Yes, but you should understand the tax implications. Withdrawing before 5 years means you lose the full Income Tax and NI exemption and shares count as employment income at withdrawal.

Is a SIP available to all employees?

HMRC requires SIP plans to be offered on similar terms to all employees (with limited exceptions, e.g. service qualifying periods up to 18 months). Employers cannot pick and choose which employees participate.

How does a SIP compare to an EMI scheme?

SIP is HMRC-approved and open to all employees broadly, with no company size limits. EMI is aimed at smaller companies (gross assets under £30m) and provides CGT-only treatment on options for key employees. They serve different purposes.

What are the record-keeping requirements for a SIP?

Employers must keep records of all share allocations, partnership share purchases, matching awards, and dividends reinvested. An annual ERS return must be filed with HMRC by 6 July after each tax year.

Share Incentive Plan (SIP) Calculator 2025/26

Annual salary (£)

Free shares per year (£, max £3,600)

Partnership shares per year (£)

Matching ratio (employer gives per 1 you buy)

Your income tax rate

Partnership shares (capped)

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Matching shares received

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Free shares received

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Total shares received

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Income tax saving (partnership)

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NI saving (partnership, 8%)

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Total annual saving

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Effective cost per £1 partnership

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Assumes 5-year holding for full exemption. Matching shares capped at £3,600/year. NI saving at 8% employee rate.

How a Share Incentive Plan Works

A Share Incentive Plan (SIP) is an HMRC-approved all-employee share scheme that provides significant tax advantages on company shares. There are four types of shares within a SIP:

Share Type	Who Provides	Annual Limit	Tax if Held 5+ Years
Free shares	Employer	£3,600	Free of Income Tax and NI
Partnership shares	Employee (from gross salary)	£1,800 or 10% salary	No further IT/NI on withdrawal
Matching shares	Employer	Up to 2× partnership (max £3,600)	Free of Income Tax and NI
Dividend shares	Reinvested dividends	£3,600 (within free shares limit)	Tax-free if held 3+ years

Early Withdrawal Tax Rules

Withdrawing free or matching shares from the SIP plan trust early triggers a tax charge. The taxable amount depends on how long shares have been held:

Time in Plan	Tax Charge Basis
Under 3 years	Full market value at withdrawal — Income Tax and NI apply
3 to 5 years	Lower of acquisition value or market value at withdrawal
5 or more years	No Income Tax or NI — fully exempt

Frequently Asked Questions — Share Incentive Plans

What is the maximum annual investment in a SIP?

When are free shares tax-free?

How are partnership shares purchased?

What is the effective cost for a basic rate taxpayer?

Can matching shares be clawed back?

Are dividend shares subject to CGT on sale?

What happens to my SIP shares if I leave the company?

Does a SIP work for all company sizes?

How does SIP interact with the CGT annual exempt amount?

Is participation compulsory?

What is the maximum partnership share amount per month?

Do SIP shares attract stamp duty?

How do I report SIP benefits to HMRC?

Share Incentive Plan (SIP) Calculator 2025/26 | Tax-Free Shares