Share Inceptive Plan (SIP) -IAT Flashcards
Explain the implications of gifting shares
Readily convertable - IT Class Primary EE Class 1 Secondary ER reported through PAYE
Not readily convertable - IT through self assesment
When are assets readily convertable
General principle - are the assets listed on a registered registered stock exchange
Other - Is the issuing company entitled to s CT tax reduction in respect of the sahres awarded
1)Are the shares part of a tax advantage share scheme
2)or Are the shares ordinary shares with no special voting rights in either a listed company
3)or Are the shares ordinary shares with no special voting rights in a a company which is not under the control of another company
Answer yes to any of the abover therefore readily convertable asset.
What are the share options under a SIP
Free shares
Partnership shares
Matching shares
Dividend shares
What is the main condition for SIP
How does it work
Must be offered to all employees, full and part time.
Can be perfomance related as long as the criteria is the same for all employees.
Can exclude if worked for less than 18 months
Shares are awarded and held in trust. Employee withdraws the shares from the trust
Explain Free Share Options
Company awards shares upto 3600 per annum
Must not withdraw within three years unless leave company
Less than three years - IT and NI on MV on withdrawl
2- 5 years - IT and NI on the lower of MV at time the option was awarded or when withdrawn
> 5 years no IT or NI
Readily convertable asset - NI and collected under PAYE
Explain Partnership Share Options
Employee can purchase upto 1800 partnship shares which are held in trust per annum (or 10% of salary plus bonus if less)
Cost of option deducted from salary before IT and NI - tax saving at source.
Can withdraw whenever
Less than three years taxed as earning IT and NI at MV when excercised
2- 5 years - IT and NI on the lower of MV at time the option was granted or when excercised
> 5 years no IT or NI
Explain Matching Share Options
For every 1 partnership share purchased the employee can award upto 2 share options.
Same rules as free shares
Dividend
If an employee receives dividends from shares owned can use the dividends to buy share which are then held in trust
No IT paid on dividends used to purchase shares
If withdraw within three years pay tax on dividends
If withdraw after three years no tax implications.
NO NI on dividends
What are the CGT consequences and how can these be avoided
Cost = MV at date withdrawn
Result in capital gain tax when employee sells shares that they have previously withdrew
Only withdraw before ready to sell.
What is the maximum number of £1 shares a company can issue in 1 tax year
Free shares - 3600
Partnership shares - 1800
Matching - 3600
Total - 9000 @ £1
