Chapter 15 - Share Incentive Plans Flashcards
Shares Acquired from a SIP
Initially an employee can receive free shares with no IT or NIC consequences.
The SIP also allows employees to buy partnership shares and obtain IT relief.
If they do buy partnership shares, they may get additional free shares called matching shares.
A SIP allows employees to reinvest their dividends to purchase more shares, these are called dividend shares
Operation of a SIP
The co will establish a UK res trust and will transfer cash into it. The trustees will use the cash to buy shares in the co.
The trust will then award the shares to employees. Ownership does not pass to the employee on award, they remain owned by the trust. They are held by the trust until an employee withdraws from the plan.
There is never a tax charge on award. There may be charges on withdrawal
Conditions
The SIP must be registered with HMRC. The shares normally must be registered on the stock exchange. All employees must be invited to participate, and must be offered shares on similar terms.
Free Shares
An employer can award up to £3,600 of free shares per annum to participating employees.
Free Shares Tax and NIC
Withdrawn within 3 years: IT on MW @ withdrawal
3-5 years: IT on lower of MV @ withdrawal or allocation
More than 5 years: no IT
Partnership Shares
Employees can buy up to £1,800 worth of partnership shares each year. The amount is deducted from salary and cannot exceed 10% of salary ie can’t buy £1,800 unless salary is at least £18,000.
Partnership Shares Tax and NIC
Within 3 years: IT on MW @ withdrawal
3-5 years: IT on lower of amount used to buy shares or MV @ withdrawal
More than 5 years: no IT
Matching Shares
Employer can allocate up to two additional free shares for every one partnership share purchased.
Matching Shares Tax and NIC
Within 3 years: IT on MW @ withdrawal
3-5 years: IT on lower of MV @ withdrawal or allocation
More than 5 years: no IT
Dividend Shares
Any dividends from plan shares can be reinvested to acquire dividend shares
Dividend Shares Tax and NIC
Within 3 years: dividend used to buy shares becomes taxable
3-5 ears: no IT
More than 5 years: no IT
Other Points
On termination of employment by the employee, any shares awarded must be removed from the plan and there may be tax and NIC due.
If an employment ends for injury, for death, retirement or redundancy, there is no charge on a withdrawal of shares
CGT
Charged on the difference between the value of the shares at withdrawal and their value at date of sale. No CGT due if left in the trust until the date of sale
