UK Government's Share Incentive Plan Offers Potential For Large Tax Breaks

by Jason Gorringe, Tax-News.com, London

18 February 2004

More than 7,500 firms are now offering the UK government’s Share Incentive Plan, which has the potential to give employees up to £350 million in tax relief, according to independent financial advisory body IFAP.

Under the plan, companies are able to give their workers up to £3,000 in ‘free’ shares annually that are exempt from income tax and National Insurance Contributions. Employees are also permitted to purchase up to £1,500 per year in ‘partnership’ shares which are also exempt from tax and NIC. This is in addition to two free ‘matching shares’ that the firm can give the employee for each partnership share purchased.

Shares that are kept in the plan for five years will remain exempt from tax, including capital gains tax, if profits are taken straight away, though stock that is held will become liable for CGT upon sale profits of shares.

Whilst experts point out the scheme can be quite risky, they also indicate that there can be significant benefits. For example, a higher rate taxpayer could pay as little as £60 for shares worth £200 if the firm matches purchases on a one-for-one basis.

However, the downside is the risk of being seen as a ‘bad leaver’ should the employee leave the company, resulting in the clawing back of any tax breaks.

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