What is a Share Incentive Plan (SIP)?
A Share Incentive Plan is an HMRC-approved, all-employee share scheme. Your employer sets up a trust that holds shares on your behalf, and as long as the shares stay in the plan for five years you pay no income tax or National Insurance on them. A SIP can contain up to four kinds of shares, and an employer can offer any combination.
The four types of SIP shares
| Share type | Who pays | Annual limit | Notes |
|---|---|---|---|
| Partnership shares | You, from gross pay | Lower of £1,800 or 10% of salary | Bought before income tax and NI are deducted |
| Matching shares | Employer | Up to 2 free shares per partnership share | Employer chooses the ratio; may carry a forfeiture period of up to 3 years |
| Free shares | Employer | £3,600 per employee | Can be linked to performance |
| Dividend shares | Dividends on plan shares | No fixed monetary cap | Reinvested dividends must stay in the plan for 3 years to be tax-free |
How this SIP calculator works
Enter your salary and marginal tax band, then choose how much you put in as partnership shares and how many free and matching shares your employer provides. The calculator applies the statutory annual caps, grows each year's contribution at the share price growth you expect, and then applies the tax rules for your chosen holding period.
- Tax and NI saved: partnership contributions × (your income tax rate + your employee NI rate). A basic rate taxpayer saves 28p in every £1 (20% + 8%); a higher rate taxpayer saves 42p (40% + 2%).
- Held 5 years or more: no income tax or NI on withdrawal, and no CGT while shares remain in the plan.
- Held 3 to 5 years: income tax and NI on the lower of the original value and the value at withdrawal.
- Held under 3 years: income tax and NI on the full value at withdrawal (with limited exceptions for “good leavers”).
- Comparison figure: the same take-home pay invested outside the plan, with capital gains taxed at 18% or 24% after the £3,000 annual exempt amount.
Worked example
An employee on £45,000 buys £150 a month of partnership shares (£1,800 a year, the maximum). Their employer matches 1:1 and awards £1,000 of free shares. Each year £1,800 + £1,800 + £1,000 = £4,600 goes into the plan, but it costs the employee only £1,296 in lost take-home pay, because 28% of the £1,800 would otherwise have gone to HMRC. After five years of 6% growth and a five-year hold, the plan is worth roughly £27,500 with no tax due on withdrawal.
Moving SIP shares into an ISA
When you leave the plan you can sell the shares, keep them, or transfer them to a Stocks and Shares ISA within 90 days of withdrawal. Transferring to an ISA means future growth and dividends are sheltered from CGT and dividend tax. Transfers count towards your ISA allowance.
Limits of this calculator
The figures are estimates. They use England, Wales and Northern Ireland income tax rates, assume your marginal rate does not change, ignore the personal allowance taper above £100,000, and treat every contribution as made at the start of the year. Scottish taxpayers pay different income tax rates. Check your plan's rules and the GOV.UK guidance on SIPs before making decisions.
Frequently asked questions
How long do I have to keep SIP shares for them to be tax-free?
Five years from the date the shares were awarded or bought. Shares taken out after five years are free of income tax and National Insurance, and there is no capital gains tax while they are held in the plan.
What is the maximum I can put into partnership shares?
The lower of £1,800 in a tax year or 10% of your salary for that year. Your employer may set a lower limit in the plan rules.
Do I pay National Insurance on SIP partnership shares?
No, provided the shares stay in the plan for five years. Partnership shares are bought from pay before income tax and employee NI are calculated.
What happens to my SIP shares if I leave my employer?
Leaving ends your participation. Shares are normally taken out of the plan, and the tax treatment depends on the reason for leaving and how long they were held. Good leaver reasons such as redundancy, retirement or injury can allow tax-free withdrawal.
Can I put SIP shares into an ISA?
Yes. You can transfer shares from a SIP into a Stocks and Shares ISA within 90 days of taking them out of the plan.
Is a SIP better than EMI options?
They solve different problems. A SIP is open to all employees and gives you shares. EMI options are for selected employees of qualifying small companies and can create much larger gains. Our scheme comparison guide explains the differences.