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Share Incentive Plans (SIPs)

If you get shares under one or more SIPs and keep them in the plan for five years you won't pay Income Tax or National Insurance Contribitions (NICs) on their value when you acquire them. (Employers normally have to deduct this from the value of benefits they give you.)

You also won't pay any Capital Gains Tax (CGT) if you keep them in the plan until you sell them. If you keep the shares after you take them out of the plan you'll only pay CGT - if due - on any increase in value between when you take them out and when you sell them.

If you take SIP shares out of trust early, you will pay Income Tax and NICs - the amount depending on when you take them out.

There are four different SIPS schemes:

Free shares

Your employer can give you up to £3,000 worth of free shares in any tax year. They may be linked to:

Partnership shares

Under this SIP you can buy shares out of your salary before deduction of Income Tax and NICs - meaning you save on both. You can spend up to 10 per cent of your income or £1,500 in any tax year on partnership shares. 

Matching shares

Your employer can give you up to two free partnership shares for each one you buy.

Dividend shares

If you receive dividends from any of the shares you hold above, you won't have to pay Income Tax on them if you re-invest them in the company and keep the shares for at least three years. You can invest up to £1,500 worth of dividends each tax year in this way.

• SIPS - learn more from HM Revenue & Customs (RTF document, 82K) (opens new window)

Save As You Earn (SAYE)

An approved SAYE scheme is a savings-related scheme that your employer sets up. It must be available to all employees who've been with the company for a certain time. The scheme gives you a right - known as a 'share option' - to buy shares with your SAYE savings for a price that's fixed at the start.

You can save up to £250 a month into the scheme out of your take-home pay. At the end of your savings contract (three to five - or sometimes seven - years) you can use the savings to buy the shares.

Tax advantages of approved SAYE schemes

The interest and any bonus at the end of your savings scheme is tax free (unless you cash it in early).

Also you don't pay any Income Tax and NICs on the difference between what you pay for the shares when you use your option and what they're actually worth. Income Tax and NICs are due on this difference with non-approved schemes.

Tax when you sell the shares

You may have to pay CGT when you sell the shares. But you won't pay any if you put the shares into an ISA as soon as you buy them.

• Tax rules for SAYE schemes (opens new window)
• More about SAYE schemes (opens new window)

Company Share Option Plan (CSOP)

An approved CSOP scheme gives you a right, (or 'option',) to buy up to £30,000 worth of shares at a fixed price at a particular time. Your employer can choose who to offer the option to - but you won't be eligible if you already own more than 25 per cent of the shares of a company that's controlled by under five people (or by its directors).

Tax advantages

You won't pay Income Tax and NICs on your option or when you get your shares if the scheme's approved and you stick to the rules.

Tax when you sell the shares

You may have to pay CGT when you sell the shares.

• Company share option plans - learn more (opens new window)

Enterprise Management Incentives (EMI)

If you work for a company that's got assets of up to £30 million, it can offer you an option to buy shares worth up to £120,000 without you having to pay Income Tax or NICs.

You may have to pay CGT when you sell the shares.

• Enterprise Management Incentive schemes - learn more (opens new window)

Are there any disadvantages of joining an approved scheme?

If you join a scheme, some possible disadvantages are:

• Possible disadvantages of employee share ownership schemes (opens new window)
• Share incentive plans and your entitlement to benefits (opens new window)
• Help with PDF files

Tax rules for other employee share schemes

Not all employee share schemes are approved by the government - and those that aren't don't have the same tax advantages.

With an unapproved scheme you'll pay:

• Shares and share options without tax and NICs advantages (opens new window)

More useful links

• More about share schemes (opens new window)
• Description of employee share schemes (opens new window)
• Self Assessment help notes - CGT and exercise of share options (opens new window)
• Self Assessment help notes - filling in share scheme pages (opens new window)
• Tax on the sale of shares
• Capital Gains Tax (CGT)
• Help with PDF files