Share Incentive Plans (SIP): Buy Employer Shares Tax-Free in 2026/27

What a Share Incentive Plan is

A Share Incentive Plan, or SIP, is an HMRC-approved scheme that lets you own shares in the company you work for in a very tax-efficient way. If your employer runs one, it can be one of the strongest legal tax breaks available to ordinary employees, because the money used to buy shares is taken before tax.

There are four kinds of shares in a SIP: partnership shares you buy yourself, free shares your employer gives you, matching shares your employer adds when you buy partnership shares, and dividend shares bought with dividends from the plan.

How the tax relief works

The headline benefit is on partnership shares. You buy them out of your gross pay, before Income Tax and National Insurance are deducted. For 2026/27, employee National Insurance is 8% between GBP 12,570 and GBP 50,270, and Income Tax is 20% in the basic band, so the combined saving on each pound put in can be significant.

If you keep the shares in the plan for five years, you pay no Income Tax and no National Insurance on them at all.

Worked example

Daniel earns GBP 40,000 and is a basic-rate taxpayer. He puts GBP 1,800 into partnership shares over the year, the annual maximum.

• The GBP 1,800 comes from gross pay, so he saves 20% Income Tax, which is GBP 360.
• He also saves 8% employee National Insurance, which is GBP 144.
• The shares cost him GBP 1,800 of gross pay but only GBP 1,296 of take-home pay.
• After five years in the plan, there is no Income Tax or National Insurance to pay on those shares.

For a higher-rate taxpayer the saving is larger, because the 40% Income Tax band applies, though employee National Insurance drops to 2% above GBP 50,270.

The limits to know

• Partnership shares: up to GBP 1,800 a year or 10% of salary, whichever is lower.
• Free shares: employers can award up to GBP 3,600 a year.
• Matching shares: up to two free matching shares for each partnership share bought.
• The five-year holding period gives full relief from Income Tax and National Insurance.

Watch the concentration risk

The tax break is real, but holding a large amount of your wealth in your employer's shares carries risk. If the company struggles, your job and your savings can be hit at the same time. Many employees take shares out at the five-year point and move them into a stocks and shares ISA, where future growth is sheltered and the holding is diversified.

Shares transferred directly from a SIP into an ISA within 90 days of leaving the plan can usually avoid a Capital Gains Tax charge on the transfer, subject to your GBP 20,000 ISA allowance for 2026/27.

Quick recap

• Partnership shares are bought from pre-tax pay, saving Income Tax and National Insurance.
• Hold for five years and there is no Income Tax or National Insurance on them.
• Annual limit is GBP 1,800 or 10% of salary, whichever is lower.
• Consider moving shares into an ISA to manage concentration risk.
• This is general information, not financial advice. Confirm the rules on gov.uk.

To compare the take-home cost of SIP contributions against your salary, use the salary and income tax calculators on CalcHub and read the employee share scheme guidance on gov.uk.