Answers · UK 2025/26
How is a Share Incentive Plan (SIP) taxed in the UK?
A Share Incentive Plan (SIP) is an HMRC tax-advantaged scheme that lets you acquire shares in your employer free of Income Tax and National Insurance if you keep them in the plan for at least five years. Shares are held in a trust; selling within five years brings tax charges. Shares sold straight from the plan are also free of Capital Gains Tax.
Full answer
A Share Incentive Plan (SIP) is one of HMRC's tax-advantaged all-employee share schemes. Shares are held on your behalf in a special trust, and the tax treatment depends mainly on how long they stay there. There are four share types: Free Shares (given by the employer), Partnership Shares (bought from your pre-tax salary), Matching Shares (extra shares the employer adds to match Partnership Shares), and Dividend Shares (dividends reinvested into more shares). The core advantage is that if you leave the shares in the plan for at least five years, you pay no Income Tax and no National Insurance on Free, Partnership, or Matching Shares. Partnership Shares are especially efficient because they are bought from gross pay, giving immediate Income Tax and NI savings on the amount used. There are annual limits on how much you can put in (a cap on Free Shares, and a percentage-of-salary cap on Partnership Shares); this card does not hold those figures, so check gov.uk for the current limits. If you take shares out early, tax applies: removal within three years generally triggers Income Tax and NI on the full market value at withdrawal; between three and five years, tax is based on the lower of the original cost or current value; after five years there is no Income Tax or NI. A major benefit is Capital Gains Tax: if you sell shares immediately on taking them out of the plan, there is no CGT to pay, whatever the growth. CGT can apply only if you keep the shares after withdrawal and they then rise further before sale. Who it affects: employees of companies that operate a SIP, which must be open to all eligible staff. Worked example: you put GBP 150 a month of gross salary into Partnership Shares. As a 20% taxpayer with 8% employee NI in 2026/27, you save tax and NI on that GBP 150 immediately, and after five years the shares come out free of Income Tax, NI, and (if sold at once) CGT. Use the take-home pay calculator to see the salary-sacrifice effect.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.