Share Incentive Plan (SIP)

Whether it is purchasing partnership shares on a monthly basis or selling shares upon release from the trust, we can offer:

• Share dealing for the SIP trust
• Custody of the SIP shares
• Participant dealing if they leave the trust

A Share Incentive Plan (SIP) is a HMRC all-employee approved plan which has several different segments depending on how the company wish to offer the plan to the employees. A SIP offers the ability for the participant to invest in the company using pre-tax salary, with the company having the ability to award up to double the participant’s investment, in addition to a further award. The shares for any investment/award have to be held in a trust, appointed by the company, for a qualifying period to maintain the tax efficient status. The segments are:

• Partnership Shares
• Free Shares
• Matching Shares; and if shares are purchased or awarded
• Dividend Shares.

SIP Partnership shares enable the participant to invest, prior to deduction of income tax and National Insurance Contributions (NICs), i.e. from their gross salary, in company shares. The company can decide on the investment frequency, i.e. invest on a monthly/quarterly/annual basis but the investment must be subject to the following limits:

• £1,500 per year (or 10% of gross salary if lower)
• Minimum monthly investment amount cannot exceed £10.

The participant has the right to amend or stop and restart the investment amount at any time but only once if in an accumulation period (see below).

The company has two choices on the frequency of the investment:

Option 1 - Within 30 days following the deduction from salary; or

Option 2 - Within 30 days of a set accumulation period, of not more than 12 months from the initial monthly investment.

Should the company choose Option 1, following investment, nothing further has to be done. This also provides the ability to spread the maximum £1,500 investment evenly across the year, i.e. up to £125 per month

Should the company choose Option 2, allowing the monthly deductions to accumulate, the price allocated to the employee is the lower of the market value at the start or end of the accumulation period, regardless of what price the shares are purchased at in the market.

Therefore, it is worth pointing out that should the shares rise over the accumulation period, the company will have to account for the difference between the purchase price and the price the shares are allotted to the employee.

In addition to the partnership shares, the company can award free and/or matching shares. Both are subject to a qualifying period and may be subject to fair and measurable performance conditions being achieved by the participant and/or the specified business unit. The company may have the right to forfeit these shares should the employee leave within a set period from the award of shares, normally 3 years.

The company can award employees shares up to a market value of £3,000 per year.

These are only applicable if the company decides to operate partnership shares. The company can award up to 2 matching shares for every partnership share purchased, on the same day as the participant purchases the partnership shares.

Dividends paid on shares held within the SIP trust can be reinvested to hold further shares in the trust, “dividend shares”. If reinvested, at the choice of the participant, they:

• Are limited to a reinvestment value of £1,500 per year.
• Must be held for a minimum of 3 years.

Any dividend received above £1,500 has to be paid to the participant in cash.

If the company decides to offer a SIP to its eligible employees, all the SIP investment/award possibilities state that:

• A trust must be appointed to hold any SIP shares;
• Shares offered must listed on a recognised stock exchange or of the main controlling company;
• The company awarding the SIP must be the controlling company;
• No voting rights are afforded to the shares in the trust;
• If not forfeited, the shares must be withdrawn from the SIP upon leaving employment.

As there are several possibilities with SIP shares, the table below summarises the company’s options and associated holding period to ensure the tax efficient status is preserved.

* assuming still in employment.