Share incentive plans (SIP)—income tax and NICs treatment of awards
Produced in partnership with Jonathan Fletcher Rogers of Addleshaw Goddard
Share incentive plans (SIP)—income tax and NICs treatment of awards

The following Share Incentives guidance note Produced in partnership with Jonathan Fletcher Rogers of Addleshaw Goddard provides comprehensive and up to date legal information covering:

  • Share incentive plans (SIP)—income tax and NICs treatment of awards
  • Summary of tax treatment
  • Income tax and NICs on the award of shares
  • Shares ceasing to be subject to a SIP—situations where no income tax or NICs charges arise
  • Shares ceasing to be subject to a SIP—situations where an income tax charge arises
  • Identifying shares which cease to be subject to a SIP
  • Charge on partnership share money paid over to employee
  • No charge on incidental expenditure
  • Charge on capital receipts in respect of SIP shares
  • PAYE and NICs
  • more

Summary of tax treatment

The tax benefits available under a ‘Schedule 2 share incentive plan (SIP)’ are significant, both for the employee and the employer.

Employees who are higher rate tax payers can save up to 42% (additional rate taxpayers can save up to 47%) in income tax and National Insurance contributions (NICs) if they choose to purchase partnership shares under a SIP, and then also benefit from tax free growth in the value of shares purchased.

In addition, any free, matching and dividend shares can also potentially be acquired and sold free of any income tax, NICs and capital gains tax (CGT).

The employer can save on employer NICs, which can be a significant overall saving if the SIP is participated in by a large number of employees.

Shares acquired under a SIP need to be held for at least five years (dividend shares for three years) in order to enjoy a full income tax and NICs exemption, and this in itself can be an important retention mechanism. However, in many industries, five years is beyond the period of time employees will expect to stay with an employer and therefore this may reduce the attractiveness of a SIP.

For more information on SIPs generally, see Practice Note: What is a share incentive plan?

For details of the CGT and corporation tax treatment of SIP

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