Share Incentive Plans

Unveiled by Gordon Brown in his March 2000 Budget under the name All-Employee Share Plans (AESOPs), these were relaunched in November 2001 as Share Incentive Plans (SIPs).

The scheme is a replacement for profit related pay, which was phased out in 2000.

Each year employees can buy up to £1,500 of 'partnership shares' from their gross salary or wages, reducing their tax and National Insurance Contribution liability.

On top of these purchases, employers can give employees up to two free 'matching shares' for each partnership share the employees buy.

Workers who keep their shares in the scheme plan for five years pay no income tax or NIC on profits made on their sale thereafter.

However, if you take shares out of the SIP after three years you will pay income tax and NIC - but only on the initial value of the shares (or the market value if it is lower than the initial value at the time of sale).

See Also: Tax tables and Moneyextra's guide to saving tax

Last Updated: April 2008 © Moneyextra.com

MoneyExtra.com recommends you should consider taking independent financial advice before acting on any article. Please contact us for help with your individual circumstances if any assistance is required.