Chapter 31 - Share Incentive Plans (SIPs) Flashcards
What happens when a trust acquires shares in the employer company?
The shares are awarded to employees but continue to be held on trust
True or false
The shares can be offered to some employees
False
The shares must be offered to all employees, included full & part time.
Employees with less than 18 months service may be excluded
Explain ‘free shares’
Employees can be awarded up to £3,600 per annum
Explain ‘partnership shares’
Employees can buy shares up to the lower of £1,800 or 10% salary plus bonus
Explain ‘matching shares’
The employer could give up to 2 further matching shares to the employee for each partnership acquired
Explain ‘dividend shares’
Any dividends from plan shares can be reinvested to acquire dividend shares
How is salary surrendered to buy partnership shares treated?
It is deducted from gross salary before income tax and NICs are calculated
How are free shares, partnership shares, and matching shares treated if withdrawn within 3 years?
Income tax is charged on the market value at withdrawl
How are dividend shares treated if withdrawn within 3 years?
Dividend used to buy shares becomes taxable
How are free shares & matching shares treated if withdrawn in 3-5 years?
Income tax is charged on the lower of:
- Market value at allocation
- Market value at withdrawal
> 5 = no income tax
How are partnership shares treated if withdrawn in 3-5 years?
Income tax charged on the lower of:
- Amount used to purchase shares
- Market value at withdrawal
> 5 = no income tax
How are NICs applied if there is an income tax charge?
Class 1 NIC will apply if the shares are readily convertible assets
How do you calculate the amounts charged to capital gains tax?
Sale proceeds
LESS: market value at withdrawal
