What are the four types of SIP shares?

1. Free shares (up to £3,600/year from employer). 2. Partnership shares (buy from salary, up to £1,800/year or 10% of salary). 3. Matching shares (employer gives up to 2 matching shares per 1 partnership share). 4. Dividend shares (reinvest dividends in shares).

How long do you need to hold SIP shares for the tax advantages?

Hold for 5 years: completely free from income tax and NIC. Leave before 3 years: full income tax and NIC on market value at withdrawal. Leave between 3–5 years: income tax on lower of market value at award or at withdrawal.

Is there CGT on SIP shares?

For CGT purposes, the base cost is the market value when shares leave the SIP (not the original award value). If transferred directly to an ISA within 90 days, no CGT at all on future gains.

How much can my employer give in free shares?

Up to £3,600 per employee per tax year in free shares. The award must be on the same terms for all qualifying employees (though can be linked to salary, performance, or length of service).

Can I use partnership shares to reduce my income tax?

Yes. Partnership share purchases are deducted from gross pay before income tax and NIC. If you pay 40% income tax plus 8% NIC on those earnings, you save 48p in tax for every £1 of partnership shares.

What happens to SIP shares if I leave my employer?

Leaving within 3 years: income tax and NIC on market value at that date. Leaving 3–5 years: income tax on lower of award or withdrawal value. After 5 years: no income tax or NIC at all.

Are SIP dividends taxable?

Dividends paid on SIP shares can be reinvested as 'dividend shares', and if held for 3 years they are income tax exempt. Without reinvestment, dividends are taxable like any other UK dividends.

How is the £3,600 free share limit applied?

It's per tax year per employer. Multiple employers can each give £3,600, but one employer cannot give more. The limit has been £3,600 since 2014 and is subject to future government review.

Can I contribute more than £1,800 to partnership shares?

No. The maximum partnership share purchase is £1,800 per year or 10% of salary (whichever is lower). You can make monthly contributions during an accumulation period of up to 12 months.

How does SIP matching work?

For every 1 partnership share you buy, the employer can award up to 2 matching shares free. Matching shares have the same 5-year holding requirement. If you withdraw partnership shares early, you also forfeit matching shares.

What if my employer's share price falls to zero?

Unfortunately SIP shares are real shares, not options. If the company fails and shares become worthless, you lose the value. This concentrates employment and investment risk — consider diversifying once shares leave the plan.

What is the SIP income tax saving at basic rate?

Partnership shares save 20% income tax + 8% NIC = 28% effective saving for basic rate taxpayers. For 40% taxpayers: 40% + 2% = 42% saving. Free shares are like receiving gross pay — worth more than an equivalent cash bonus.

SIP Share Incentive Plan Calculator

Calculate your free shares, partnership shares, and income tax savings

SIP Annual Benefit Calculator

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How a Share Incentive Plan Works

A SIP is an HMRC-approved employee share scheme with four share types. Shares are held in a trust for you. After 5 years you can take them out with no income tax. You can transfer them to an ISA within 90 days of leaving the plan to shelter future CGT.

Frequently Asked Questions

How long to hold for full tax exemption?

Partnership share tax saving?