A Share Incentive Plan (SIP) is designed to be flexible so that all employees can participate and employers can reward specific performance.
Shares acquired under the plan have to be held in a UK resident trust to ensure the independent legal ownership of the shares.
Employers can give employees up to £3,600 of shares each year free of tax and national insurance (“free” shares). Some or all can be awarded based on performance targets.
Employees can buy up to £1,800 of shares out of their pre-tax and pre-NIC salary (“partnership” shares). Employers will be able to match partnership shares by giving employees up to two further free shares for each partnership share (“matching” shares) up to a maximum of £3,600. Up to £1,800 of dividends may be reinvested in shares tax-free each year.
Shares must leave the plan when the employees leave their job. The company can decide whether employees lose their free shares if they leave within 3 years.
The company will obtain corporation tax relief for the costs they incur in providing shares and also for the market value of the free and any matching shares given to the employee.
The company must offer all employees the opportunity to participate in the plan whether they work full or part-time (although a minimum period of employment can be specified before an employee can qualify – this cannot exceed 18 months).
Employees who keep their shares in a plan for 5 years pay no income tax or national insurance on those shares and there will be no capital gains tax on sale.
Employees who take their shares out of the plan after 3 years will pay income tax and national insurance on only the initial value of those shares – any increase in the value of their shares while in the plan will be free of income tax and national insurance.
Employees who keep their shares in the plan until they are sold will have no capital gains tax to pay on sale. If they take the shares out and sell them later then there will only be a charge to capital gains tax on any increase in the value of the shares after they have been taken out of the plan.