GLOSSARY

Share incentive plan definition

/ʃɛː/ /ɪnˈsɛntɪv/ /plan/

What does Share incentive plan mean?

Share Incentive Plans (SIPs) are HMRC approved share plans and tax advantaged plans. In general terms, a SIP must be open to all UK resident employees of relevant companies. However, other employees may also be invited to participate. The shares awarded under a SIP are held in a trust and provided they are held for at least five years, the SIP is tax-efficient for both the employer and the employees. The SIP enables an employee to receive shares in his employer company in a variety of different ways. The first type are “Free Shares” which, in certain circumstances, can be given to the employee at no cost with no income tax or NIC consequences. The SIP also enables employees to purchase new shares in their employer company and, at the same time, obtain income tax relief on the purchase. Shares purchased in this way under a SIP are known as “Partnership Shares”. If an employee purchases partnership shares under a SIP, he may be entitled to receive additional free shares. These extra free shares are known as “Matching Shares”. Finally, a SIP enables employees to re-invest their dividends in order to purchase additional shares in the company. These shares purchased out of dividend income are known as “Dividend Shares”.


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