What is a Share Incentive Plan (SIP)?

A Share Incentive Plan (SIP) is an HMRC-approved employee share ownership scheme that allows UK companies to award shares or let employees buy shares in a tax-efficient way. SIPs have four possible components: Free Shares (awarded by the employer, up to £3,600/year), Partnership Shares (purchased by the employee from pre-tax salary, up to £1,800/year), Matching Shares (given by the employer as a match to partnership shares, up to 2:1), and Dividend Shares (reinvesting dividends into shares). All shares must be held in a plan trust.

How do Partnership Shares save me tax?

Partnership Shares are deducted from your salary before income tax and National Insurance are calculated. For a basic-rate taxpayer buying £1,800 of partnership shares per year, the income tax saving is £360 (20%) and the NI saving is £144 (8%), for a total £504 annual saving. This means your effective cost is £1,296 for £1,800 in shares — a 28% discount. Higher-rate taxpayers save even more: 40% income tax + 2% NI above the Upper Earnings Limit.

What is the maximum I can contribute to a SIP?

The HMRC limits for 2026 are: Partnership Shares up to £1,800/year (or 10% of salary if lower), Free Shares up to £3,600/year, and Matching Shares capped at a 2:1 ratio against partnership shares (so a maximum of £3,600 in matching shares per year). Dividend Shares reinvested within the plan also count towards the Free Shares limit. These limits are set by HMRC and can be adjusted by the government.

When do shares in a SIP become tax-free?

Shares held in the SIP trust for at least 5 years are free of income tax and National Insurance when withdrawn. If you withdraw shares between 3 and 5 years, you pay income tax on the market value at withdrawal but no NI. If you withdraw within 3 years, you pay income tax and NI. Capital Gains Tax (CGT) may apply to any gain above the original market value when you eventually sell, regardless of how long the shares were held in the plan.

What happens to my SIP shares if I leave my employer?

When you leave your employer for any reason (resignation, redundancy, retirement), your SIP shares are removed from the trust. If you leave within 3 years, you pay income tax and NI on the market value of partnership and free shares. If you leave after 3–5 years, you pay income tax but no NI. Leaving after 5 years means no income tax or NI. Redundancy is treated as leaving after 5 years (tax-free) regardless of how long you've held the shares — a valuable exception.

Are SIP shares subject to Capital Gains Tax?

When you sell SIP shares after withdrawing them from the trust, any gain above the market value at the time of withdrawal is subject to Capital Gains Tax (CGT) at 18% (basic rate) or 24% (higher rate) as of 2026. The CGT base cost is the market value when the shares left the trust, not the original purchase price. If you hold the shares after withdrawal until their value rises further, the additional gain is a CGT event. Use your annual CGT allowance (£3,000 for 2026) to shelter gains.

Can my employer give me Free Shares without a SIP?

Employers can give employees free shares outside a SIP, but they would be treated as employment income subject to income tax and NI at the time of award. Through an HMRC-approved SIP, Free Shares up to £3,600/year are awarded income-tax-free at the point of award. The tax advantage is significant: a higher-rate taxpayer receiving £3,600 in free shares saves up to £1,440 in income tax compared to receiving the same amount as a salary bonus.

Share Incentive Plan Calculator

Estimates annual tax and NI savings, total share value, and effective cost for UK Share Incentive Plans (SIP) — partnership, free, and matching shares.

How to Use This SIP Calculator

This share incentive plan calculator estimates your UK SIP tax and NI savings, total share value, and effective cost after tax relief. Enter your annual gross salary, the amount you want to contribute monthly as Partnership Shares (capped at £1,800/year by HMRC), the value of Free Shares awarded by your employer, and the matching ratio your employer offers (1:1 or 2:1). Figures are displayed in GBP (£).

How SIP Tax Relief Works

Partnership Shares are purchased from your pre-tax salary before income tax and National Insurance are calculated. This means you receive relief on both taxes simultaneously:

Basic-rate taxpayer (20% income tax + 8% NI): Saves 28p per £1 of partnership shares. A £1,800/year contribution costs only £1,296 in take-home pay.
Higher-rate taxpayer (40% income tax + 2% NI above UEL): Saves 42p per £1. A £1,800/year contribution costs only £1,044.

Free Shares awarded by your employer are received completely free of income tax and NI at the time of award — up to £3,600/year. Matching Shares are also tax-free at award.

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The Four Types of SIP Shares

An HMRC-approved SIP can include any combination of four share types:

Free Shares: Awarded by the employer for free, up to £3,600/year. Usually linked to company performance targets or awarded equally to all employees.
Partnership Shares: Purchased by the employee from pre-tax salary, up to £1,800/year (or 10% of salary if lower). You choose how much to contribute.
Matching Shares: Employer awards additional shares to match your partnership share purchases — the ratio (1:1 or up to 2:1) is set by the plan rules.
Dividend Shares: Dividends paid on SIP shares can be reinvested into additional shares inside the plan, free of income tax on reinvestment.

SIP Holding Period and Tax Rules

Tax treatment depends on how long you hold shares in the SIP trust:

Under 3 years: Income tax and NI due on market value at withdrawal.
3–5 years: Income tax due but no NI on market value at withdrawal.
5+ years: No income tax or NI — completely tax-free.
Redundancy: Treated as 5+ years regardless of actual holding period.

After withdrawal from the trust, any further growth in value is subject to Capital Gains Tax (CGT) when you sell. The CGT base cost is the market value at withdrawal.

Comparing SIP to Other Employee Share Schemes

The UK offers several HMRC-approved share schemes besides SIPs:

Save As You Earn (SAYE / Sharesave): A savings plan with an option to buy shares at a fixed discount. No immediate tax relief on savings; profit on the option is income-tax-free.
Enterprise Management Incentives (EMI): Stock options for employees of smaller qualifying companies. CGT rather than income tax on gains.
Company Share Option Plan (CSOP): Discretionary options up to £60,000 for qualifying employees.

SIPs are unique in offering pre-tax salary deductions for employee purchases combined with employer-matched shares — making them one of the most tax-efficient ways to build a stake in your employer. For broader income planning, use the paycheck calculator and salary increase calculator.

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SIP Contribution Strategy

To maximize SIP value, contribute the full £1,800/year in partnership shares (£150/month) if your employer offers a 2:1 match. This generates £3,600 in matching shares for free, plus your income tax and NI savings on the partnership contribution. Combined with up to £3,600 in free shares, a generous SIP can deliver £7,200+ in shares for a £1,800 employee contribution — a 4× multiplier before investment returns.

The five-year holding period is the key discipline. Employees who leave early lose most of the tax advantage. Think of the SIP as a medium-term savings plan linked to company performance, not a liquid investment.

Important Disclaimer

This calculator is for illustrative purposes based on HMRC SIP rules as of 2026. Figures are in GBP (£). Actual tax savings depend on your specific income, tax code, NI category, and employer plan rules. CGT treatment on sale is not reflected here. Consult a qualified UK tax advisor or visit HMRC's website for authoritative guidance on Share Incentive Plans.