PT39 SIPs Flashcards
How does a SIP work?
A trust is established which acquires shares in the employer company. These shares are then awarded to employees but continue to be held on trust.
The company must be quoted or not controlled by another company or under the control of a listed company.
All employees must be offered shares on similar terms and all full-time and part-time employees must be invited to join, although those with less than 18 months’ service could be excluded.
What types of shares can be awarded from a SIP?
- Employees can be awarded up to £3,600 worth of free shares per annum.
- Employees can buy partnership shares* up to the lower of £1,800 or 10% of salary plus bonus.
- The employer could give up to two further matching shares to the employee for each partnership share acquired.
- Any dividends from plan shares can be reinvested to acquire dividend shares.
- Salary surrendered to buy partnership shares is deducted from gross salary before income tax deducted under PAYE and NICs are calculated.
How many free shares can be awarded per annum?
up to £3,600 worth of free shares per annum.
How many partnership shares can employees buy?
lower of £1,800 or 10% of salary plus bonus.
What about matching shares?
the employer could give up to two further matching shares to the employee for each partnership share acquired.
A charge to income tax arises if the shares are withdrawn from the plan within ______ years
5
SIP If shares are withdrawn within 3 years they are taxed as follows:
Income tax on market value at withdrawal - including partnership shares
For any shares bought with dividend. the dividend used to buy the shares becomes taxable
If shares are withdrawn between 3 - 5 years tax is on the ____ of …
lower
– Market value at allocation
– Market value at withdrawal
If partnership shares - the amount used to purchase the shares
No income tax on dividend shares after 3 years
If shares are withdrawn after 5 years?
No tax charge
Where there is an income tax charge PAYE and Class 1 NICs…
will apply if the shares are readily convertible assets. There is never an NICs charge in respect of the withdrawal of dividend shares.
Capital gains tax?
The amount charged to capital gains tax is the difference between the value of the shares at the date they are withdrawn from the plan (the base cost) and their value at the date of sale.
Hence, capital gains tax can be avoided by leaving the shares in trust until sale.
Sale proceeds X
Less: Market value at withdrawal (X)
Capital gain X
