Glossary · UK
What is Share Incentive Plan (SIP)?
An HMRC-approved employee share scheme offering income tax and NI savings on shares in the employer, provided shares are held for 5 years.
Full Definition
A Share Incentive Plan (SIP) is an HMRC-approved all-employee share scheme that must be offered on the same terms to all eligible employees. A SIP can include up to four types of shares: (1) Free shares -- employer gives up to GBP 3,600 of shares per year free of income tax and NI; (2) Partnership shares -- employee buys shares from pre-tax salary up to GBP 1,800 per year or 10% of salary (whichever is lower), reducing income tax and NI on that amount; (3) Matching shares -- employer gives up to 2 matching shares for every 1 partnership share bought; (4) Dividend shares -- dividends from plan shares are reinvested in shares. If shares are held in the SIP for 5 years or more: income tax and NI are entirely exempt on disposal. If shares are withdrawn after 3 years but before 5 years: only partial relief. The CGT base cost is the market value of shares on the date they leave the plan.