SIP vs SAYE: UK Employee Share Schemes Explained 2026
How UK SIP and SAYE employee share schemes work in 2026/27, the tax breaks, holding periods, what happens when you leave, and how to keep gains tax-free.
Quick answer
A Share Incentive Plan (SIP) lets you buy shares straight from pre-tax salary, often with free or matching employer shares, held in a plan trust. A Save As You Earn (SAYE) scheme is a savings contract giving you the option to buy shares in three or five years at a price fixed up front, usually discounted. SIP saves Income Tax and National Insurance now; SAYE protects your cash and limits downside.
How a Share Incentive Plan (SIP) works
A SIP is run through a trust set up by your employer. There are four types of share you might receive inside it:
- Partnership shares that you buy from your gross salary, before Income Tax and National Insurance are deducted.
- Free shares that your employer can award you each year at no cost.
- Matching shares that your employer gives to match some of the partnership shares you buy.
- Dividend shares bought by reinvesting dividends earned on shares already in the plan.
Because partnership shares come out of pre-tax pay, the effective cost is lower than buying on the open market. If you are a higher-rate taxpayer paying 40 percent Income Tax plus 2 percent National Insurance on earnings above GBP 50,270, every GBP 100 of shares bought from gross pay costs you only GBP 58 of take-home pay you would otherwise have kept. A basic-rate taxpayer on 20 percent tax and 8 percent National Insurance gives up GBP 72 of take-home pay for the same GBP 100 of shares.
SIP holding periods and tax
The reliefs depend on how long the shares stay in the plan. The general structure HMRC applies is:
| Time held in plan | Income Tax and NI position |
|---|---|
| Under 3 years | Income Tax and NI normally due on the value when shares leave |
| 3 to 5 years | Tax on the lower of original value or value at withdrawal |
| 5 years or more | No Income Tax or National Insurance |
The Capital Gains Tax point is the one most people miss. When shares come out of a SIP, their cost base for CGT is reset to the market value on the day they leave the plan. So if you sell immediately, there is no gain and no CGT. If you keep the shares afterwards, only growth from that day onwards is within the scope of CGT, charged at 18 percent within the basic-rate band or 24 percent above it, once your GBP 3,000 annual exempt amount is used.
How a Save As You Earn (SAYE) scheme works
SAYE, sometimes called Sharesave, is fundamentally a savings plan, not an immediate share purchase. You commit to saving a fixed amount every month, deducted from your net pay, for either three or five years. At the start, your employer sets an option price - the price at which you can buy shares when the contract ends - which can be discounted by up to 20 percent below the market price at the time.
When the savings term ends you have a choice:
- Use your accumulated savings to buy shares at the fixed, discounted option price.
- Or take your savings back as cash and walk away.
That choice is what makes SAYE low-risk. If the share price has risen, you exercise the option, buy cheaply and pocket the difference. If it has fallen below your option price, you simply take your cash back and buy nothing.
The monthly saving and the cap
You choose a fixed monthly amount that stays the same for the whole term. HMRC sets a statutory monthly maximum across all your SAYE contracts, and employers can set their own minimum. Because the figure is set by HMRC and can change, check your scheme booklet or the current gov.uk SAYE guidance before committing, rather than relying on an old number. Committing a large sum for five years is a real budgeting decision, so model it against your other goals first.
Tax on SAYE
There is no Income Tax or National Insurance on the discount when you buy your shares at the option price - that is the headline relief. The catch comes later. If you then sell the shares, any gain above the option price is a chargeable gain for Capital Gains Tax purposes, taxed at 18 percent or 24 percent once your GBP 3,000 annual exempt amount is exhausted.
You can work out a likely CGT bill on a share sale with our
Capital Gains Tax Calculator
Calculate Capital Gains Tax on property, shares and other assets for 2025/26.
Open Capital Gains Tax calculatorIncome Tax Calculator
Work out how much income tax you owe using the latest 2025/26 UK tax bands.
Open Income Tax calculatorSIP vs SAYE side by side
SIP gives stronger up-front tax relief because you buy from pre-tax salary and may receive free shares, but you put real capital at risk from day one. SAYE gives weaker up-front relief, since you save from net pay, but your downside is protected because you can always take your savings back instead of buying.
| Feature | SIP | SAYE |
|---|---|---|
| What it is | Buy shares now in a plan trust | Save monthly, option to buy later |
| Funded from | Pre-tax (gross) salary | Post-tax (net) pay |
| Employer top-up | Free and matching shares possible | Discount of up to 20 percent on option price |
| Capital at risk | Yes, from purchase date | No, savings always returnable |
| Income Tax and NI relief | Strong if held 5 years | On the discount only |
| CGT on sale | None if sold straight from plan | Possible above GBP 3,000 exemption |
| Typical term | Open-ended while employed | Fixed 3 or 5 years |
Avoiding Capital Gains Tax on scheme shares
The single most useful planning move is the 90-day ISA transfer. Shares leaving a SAYE or SIP scheme can be moved into a stocks and shares ISA within 90 days, sheltering all future growth and dividends from tax. The transfer uses your GBP 20,000 annual ISA allowance, valued at the share price on the day of transfer.
For larger holdings you might also:
- Spread sales across tax years to use more than one GBP 3,000 annual exempt amount.
- Transfer shares to a spouse or civil partner before sale, since transfers between them are exempt, doubling the available exemption.
- Contribute shares to a pension where your plan and provider allow it, within your GBP 60,000 annual allowance.
What happens if you leave your job
Outcomes hinge on whether you are a good leaver or a bad leaver, a distinction set by each scheme's rules.
- Good leavers - redundancy, retirement, ill health, or transfer of the business - can usually exercise a SAYE option early using savings to date, and SIP reliefs are often preserved even if the normal holding period is not met.
- Bad leavers - resignation or dismissal - typically get their SAYE savings returned with no bonus and lose the share option. SIP shares held under three years may then attract Income Tax and National Insurance when they leave the plan.
Because the precise treatment varies, always read your own plan booklet and, for a large holding, take regulated advice before resigning.
Worked example: a higher-rate taxpayer
Suppose you earn GBP 60,000 and buy GBP 1,800 of SIP partnership shares over a year from gross pay. As a higher-rate taxpayer paying 40 percent Income Tax and 2 percent National Insurance on that slice of earnings, the GBP 1,800 of shares costs you only around GBP 1,044 of take-home pay. Hold them in the plan for five years and there is no Income Tax, no National Insurance and, if sold straight from the plan, no Capital Gains Tax. You can sanity-check the take-home impact of salary deductions like this using the
Take-Home Pay Calculator
Calculate your net salary after income tax, National Insurance and student loan deductions.
Open Take-Home Pay calculatorNow compare a SAYE saver putting away GBP 150 a month for three years - GBP 5,400 saved from net pay. If the option price was set at a 20 percent discount and the shares rise, the option turns a profit; if they fall, the GBP 5,400 comes straight back. The trade-off is clear: SIP gives a bigger tax break but real risk, while SAYE gives a smaller break with a safety net.
Should you join both?
Where an employer offers both, many UK employees use them for different jobs. SAYE becomes a disciplined, low-risk savings habit with an upside option. SIP becomes a tax-efficient way to build a genuine shareholding and capture free shares. Just be careful not to let employer shares dominate your wealth: if your salary and your investments both depend on one company, a downturn hits you twice. Diversify by moving shares into an ISA or pension over time, and keep an eye on your overall exposure.
Bottom line
SIP and SAYE are both HMRC tax-advantaged routes to owning shares in the company you work for, and both can save you serious tax in 2026/27 if you understand the holding periods. SIP rewards patience with five-year tax-free status and no Capital Gains Tax on a direct sale. SAYE rewards caution with a protected, one-way bet. The smartest move for most people is to use the reliefs fully, then shelter the shares in an ISA or pension before Capital Gains Tax can take a bite.
Frequently asked questions
What is the difference between a SIP and a SAYE scheme?
A Share Incentive Plan (SIP) lets you buy shares straight from your pre-tax salary and hold them inside a tax-advantaged plan trust, often topped up with free or matching employer shares. A Save As You Earn (SAYE) scheme is a savings contract: you save a fixed monthly amount for three or five years, then use the pot to buy shares at a price fixed at the start, usually discounted by up to 20 percent. SIP buys now; SAYE gives you an option to buy later.
Are SIP shares free of tax?
Partnership and free SIP shares attract no Income Tax or National Insurance if you keep them in the plan for at least five years. Sell or withdraw between three and five years and you pay tax on the lower of the original value or current value. Crucially, if you sell shares straight out of a SIP, there is no Capital Gains Tax, because the cost base is reset to market value on the day they leave the plan. Hold them outside afterwards and CGT applies to later growth.
Do I pay Capital Gains Tax on SAYE shares?
You pay no Income Tax on the discount when you buy SAYE shares at the option price. However, if you later sell those shares, Capital Gains Tax can apply to any gain above the price you paid, once your annual exempt amount of GBP 3,000 is used. CGT is charged at 18 percent within the basic-rate band and 24 percent above it. You can avoid CGT by transferring the shares into an ISA within 90 days or into a pension.
How much can I save each month into a SAYE scheme?
SAYE rules set a maximum monthly saving across all your SAYE contracts. There is also a minimum your employer can set. You choose a fixed amount that stays the same for the whole three or five year term. The exact statutory monthly maximum is set by HMRC, so check your scheme booklet or gov.uk for the current cap before you commit, as committing too much can strain your budget over a multi-year term.
What happens to my shares if I leave my employer?
It depends on why you leave. For good leavers, such as redundancy, retirement or ill health, SAYE usually lets you exercise the option early with savings to date, and SIP shares can often come out with tax reliefs preserved. For resignation or dismissal, you typically get your SAYE savings back with no bonus and lose the option, and SIP shares held under three years may trigger Income Tax. Always read your plan rules, as terms vary by employer.
Can I put employee share scheme shares into an ISA?
Yes, with limits. Shares from a SAYE or SIP scheme can be transferred into a stocks and shares ISA within 90 days of the shares ceasing to be in the scheme, sheltering future growth from Capital Gains Tax and dividend tax. The transfer counts towards your GBP 20,000 annual ISA allowance based on the share value at transfer. This is a valuable way to lock in the tax advantages before the shares are exposed to CGT.
Is a SAYE scheme risk-free?
Your savings are protected. If the share price falls below your option price, you simply take your cash savings back instead of buying, so you cannot lose the money you saved. The risk is opportunity cost and inflation: your fixed monthly savings earn little or no interest while locked away, and a falling share price means you miss the gain you hoped for. The downside is limited, which is why SAYE is often called a one-way bet.
Do dividends on SIP shares get taxed?
Dividends paid on shares held in a SIP can be reinvested into more plan shares, known as dividend shares, with favourable treatment if held in the plan. Outside a tax-advantaged plan, dividends use your GBP 500 dividend allowance, then are taxed at 10.75 percent, 35.75 percent or 39.35 percent depending on your tax band for 2026/27. Keeping shares inside the plan or moving them to an ISA shelters dividend income.
Which is better, SIP or SAYE?
Neither is universally better. SAYE suits people who want a low-risk, optional way to share in company growth without putting capital at risk, since you can always take your savings back. SIP suits those who want to build a shareholding now, benefit from free or matching shares, and accept share-price risk in exchange for stronger Income Tax and National Insurance savings. Many UK employees join both where offered, using each for a different goal.
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