Share Incentive Scheme Flashcards
Main features of a share incentive scheme
Enable employees to shares in their employer’s company either free or from gross pay on a discounted basis
Shares are held in trust for a minimum of three years & up to 5 to obtain full tax advantages
SIPs have a number of elements:
Free shares
Partnership shares
Dividend shares
Matching shares
what are free shares in relation to a SIP
Employee can receive free shares worth £3,600 per tax year
Free shares can be forfeited if an employee leaves employment within 3 years
Good leavers may keep shares but resigning within five years can limit amount of tax relief
What are partnership shares in relation to a SIP
Employees can buy shares via salary pre tax and NICs.
The company save’s employer NIC.
Employees can use this to buy shares on annual basis to the lesser of £1,800 and 10% of pay
What are matching shares in relation to a SIP?
Where employees buy shares the company can offer matching shares.
The ratio is a max of two free shares for each share purchased.
Matching shares must be held in trust for two to five years to qualify for tax relief
What are dividend shares in relation to a SIP
Dividends can be reinvested into further shares with no limit on the value of dividends that may be reinvested
Dividend shares must be held in trust for at least three years to get the full tax relief
What is income tax position of employee in relation to a SIP?
Shares are paid for from pre-tax salary so no income tax or NIC but shares must be held for five years.
What is CGT position of employee in relation to a SIP?
No CGT on release of shares that have been held 5 years
Any increase in value of shares after withdrawn from the trust until sale is liable to CGT.
Transfer to ISAs are permitted to shelter further capital gains
What is share from a SIP are withdrawn within 3 years?
Income tax and NIC will be due on the market value of the shares on the date of withdrawal
What happens if shares are withdrawn between three and five years from a SIP?
Income tax and NIC are payable on the lower of:
The market value of the shares at the date of withdrawal
And
The salary used to buy the shares
What are tax implications of joining a SIP?
Free or matching shares are income tax exempt when awarded.
Income tax and NICs are not payable on partnership shares paid from salary.
Cash dividends reinvested in dividend shares are exempt from income tax.
If shares are held in trust and sold directly from the trust no CGT will apply.
If an employee owns more than 10% of the company through a SIP further tax benefits may apply
