UK Share Incentive Plan benefit.
Annual benefit value
—
Partnership tax saving
—
Matching shares
—
Free shares
—
Your breakdown
Updates live as you type| Strand | What it is | Value |
|---|
Four kinds of share in one plan
A Share Incentive Plan is an HMRC approved, all-employee scheme that holds shares in a trust on your behalf. It has four moving parts. Partnership shares are bought straight from your gross pay, so you escape income tax and National Insurance on the money used. Matching shares are a free top-up from your employer, up to two for every partnership share you buy. Free shares can be awarded outright, up to £3,600 a year. And dividends paid on any of these can be reinvested as dividend shares. This calculator adds up the annual value those strands create for you, using your own marginal tax and NI rate for the partnership saving.
Reading the £7,956 in the example
The defaults model a maximum-effort year: £1,800 of partnership shares, a 2:1 match, £3,600 of free shares, and a 42% combined tax and NI rate. The tool reports an annual benefit value of £7,956, but it is important to see that this number blends two different things. The £756 is a genuine tax and NI saving, real cash you would otherwise have lost. The £3,600 of matching shares and £3,600 of free shares are share value handed to you, not a tax saving. They are worth exactly what the shares are worth on the day, and they can rise or fall.
The chart shows where the real money is. The short teal bar is the only piece that is guaranteed cash. The two tall bars are share value, which is generous but carries market risk.
The five-year clock that decides everything
The tax break is back-loaded. Keep your shares inside the plan for five years and they come out completely free of income tax and NI. Pull them out between three and five years and you pay tax on the lower of the value at award or the value at withdrawal. Leave before three years and you are generally taxed on the full market value at the date they come out. There is also a leaver rule: a good leaver (redundancy, retirement, ill health) usually keeps favourable treatment, while resigning to join a rival can mean forfeiting matching and free shares entirely. Read your plan rules before handing in notice.
The risk nobody mentions
A SIP concentrates your savings in the one company that also pays your salary. If the business hits trouble, your job and a chunk of your wealth take the hit at the same time. The standard expert move is to use the plan to the limit for the tax efficiency, then sell shares as soon as they leave the five-year shelter and reinvest the proceeds into a diversified Stocks and Shares ISA. Selling straight out of the plan also avoids Capital Gains Tax, because shares disposed of directly from a SIP are free of CGT.
What is the maximum I can put in each year?
You can buy up to £1,800 of partnership shares a year, or 10% of salary if that is lower. Free shares are capped at £3,600 a year. Matching shares can run up to a 2:1 ratio on your partnership shares, at the employer's discretion.
What happens to my shares if I am made redundant?
Redundancy normally counts as a good-leaver event, so your shares come out with their tax treatment intact rather than being forfeited. The exact outcome still depends on how long they have been held and the specific terms your employer set, so check the plan booklet. Retirement, ill health and death are usually treated the same favourable way, whereas resigning of your own accord before the holding period is up is where forfeiture of matching and free shares most often bites. If you are even thinking about moving on, model the value you would walk away from before you hand in your notice, because the timing of a resignation can cost more than a month of salary in lost shares.