Share Incentive Plan
Calculator
Find out exactly how much you could save in tax and NI through your company’s SIP — in under 60 seconds.
SIP Benefit Calculator
Select a share type and enter your details below
Enter your total SIP allocations to see a combined plan summary.
Free Shares
Your employer awards up to £3,600 of shares per year free. Exempt from income tax and NI if held for at least 5 years.
Max £3,600/yrPartnership Shares
Buy shares from your pre-tax salary — up to £1,800 per year. You avoid income tax and NI on the amount, lowering your real cost.
Max £150/monthMatching Shares
For every Partnership Share you buy, your employer may award up to 2 Matching Shares free — tripling your investment instantly.
Up to 2:1 matchDividend Shares
Reinvest dividends from SIP shares into more shares, shielded from dividend tax. This compounds your holding significantly over 3–5 years.
Tax-deferred growthShare Incentive Plans Explained: How Employees Can Build Wealth Tax-Efficiently
A Share Incentive Plan (SIP) is one of the most tax-efficient employee benefits available in the UK. Introduced under the Finance Act 2000 and governed by Schedule 2 of the Income Tax (Earnings and Pensions) Act 2003, SIPs allow employees to acquire shares in their employer company while keeping all — or most — of the associated tax reliefs. Yet many employees either don’t understand the mechanics or leave significant money on the table by contributing too little.
Key fact: A higher-rate taxpayer buying Partnership Shares effectively pays just 52p for every £1 of shares — because both income tax (40%) and NI (8%) are relieved at source through salary sacrifice.
What Is a Share Incentive Plan?
A SIP is an HMRC-approved all-employee share scheme, meaning any UK employee who meets the qualifying criteria must be offered participation on the same terms. Shares are held inside a SIP trust, which provides the tax wrapper. Until shares leave the trust, no income tax or employee National Insurance contributions are charged on their value.
The Four Building Blocks
Free Shares are shares your employer awards you, up to £3,600 per tax year at no cost to you. Held in the SIP trust for five years, no income tax or NI is ever charged. Removed between three and five years, tax is charged on the lower of original or current value. Within three years, tax applies to the full current value.
Partnership Shares are purchased by you from your pre-tax salary, capped at £1,800 per year. Because the deduction happens before tax and NI are applied, a basic-rate taxpayer effectively pays £72 for every £100 of shares; a higher-rate taxpayer pays just £52.
Matching Shares are awarded by your employer at a ratio of up to 2 Matching Shares per 1 Partnership Share purchased. A 2:1 match means you instantly own three times the value you paid for, all inside the tax-free trust.
Dividend Shares allow dividends received on shares inside the SIP trust to be reinvested as new shares, shielded from dividend tax. For higher-rate taxpayers facing 33.75% dividend tax, this is a meaningful saving on any substantial portfolio.
| Component | Who Buys? | Annual Limit | Tax-Free After |
|---|---|---|---|
| Free Shares | Employer | £3,600 | 5 years |
| Partnership Shares | Employee (pre-tax) | £1,800 | 5 years |
| Matching Shares | Employer (free) | Up to 2× Partnership | 5 years |
| Dividend Shares | Reinvested dividends | No fixed cap | 3 years |
Capital Gains Tax and the SIP Trust
When shares leave the SIP trust after five years, the CGT base cost resets to the market value at withdrawal — not the original purchase price. Any gain that occurred inside the trust is effectively wiped. Only gains after leaving the trust attract CGT, and only once you exceed your annual CGT allowance.
Maximising Your SIP: Practical Strategies
The most impactful lever for most employees is maximising Partnership Shares, particularly with a generous matching ratio. Consider a higher-rate taxpayer contributing £1,800 per year with a 2:1 employer match:
- Real post-tax cost: approximately £936 (after 40% tax and 8% NI relief)
- Employer Matching Shares: £3,600
- Total shares entering the trust: £5,400
- Return on actual cash outlay: 477% before any share price movement
💡 Tip: If your employer is publicly listed and you’re approaching the five-year mark, timing your withdrawal around the SIP anniversary could save thousands in income tax.
Leaving Your Employer
If you leave voluntarily or are dismissed before the qualifying period, shares removed will be subject to income tax and NI. However, leaving due to redundancy, retirement, injury, disability, or death means shares are treated as if the qualifying period was met — no tax is charged regardless of how long they were held.
Common Mistakes to Avoid
Many employees withdraw shares before the qualifying period to access cash — triggering the exact tax they joined to avoid. Others fail to account for the CGT base cost reset when planning a post-trust sale strategy. Some don’t monitor their Accumulation Account before formal share allocation, and are surprised by the brief holding window before shares are purchased on their behalf.