Share incentive plan calculator, 2026/27

How this is calculated

A Share Incentive Plan (SIP) is the only all-employee share scheme where contributions come straight out of gross salary, meaning you never pay income tax or National Insurance on the money used to buy 'partnership shares', unlike buying shares with money that has already been taxed.

The annual limit for partnership shares is the lower of 10% of your pay or £1,800, and employers can add free shares worth up to £3,600 a year plus matching shares on top, often on a ratio such as one matching share for every one or two partnership shares bought.

The tax treatment of all these shares depends on how long they stay in the plan: hold them for five years and there is no income tax or NIC at all on the value received, only capital gains tax if you later sell them for more than their value when they left the plan.

Why SIP is efficient for both sides

Because contributions reduce gross pay before tax and NIC are calculated, both employee and employer save National Insurance, making SIP one of the few employee benefits where the employer also has a direct financial incentive to encourage take-up.

The scheme must generally be offered to all eligible employees on similar terms, which suits companies wanting a broad-based ownership culture rather than a scheme targeted at a handful of senior staff.

Leaving early

Shares withdrawn within three years of being awarded are taxed as income on their value at the date of withdrawal. Between three and five years, tax is charged on the lower of the value when awarded and the value when withdrawn, with a further income tax reduction for growth in value.

After five years shares can be withdrawn completely free of income tax and NIC, which is why SIP is best suited to employees planning to stay with the business for the medium term.

Can I take my shares out before five years?

Yes, but doing so before three years means the full value is taxed as employment income; between three and five years there is partial relief, and only after five years is withdrawal completely free of income tax and NIC.

What happens if I leave my job?

Leaving usually triggers withdrawal of your shares from the plan, taxed according to how long they have been held, though certain 'good leaver' reasons such as redundancy or retirement can allow tax-free withdrawal regardless of the holding period.

Do dividends on SIP shares get special treatment?

Dividends can be reinvested tax-free in further 'dividend shares' within the plan if held for three years, an option not available with dividends from shares held outside a SIP.

Is a SIP suitable for a small owner-managed company?

It can be, though the administrative cost of running a compliant plan means SIP is more commonly used by larger or listed employers; smaller companies more often use EMI options for key staff instead.