Share Incentive Plan

It offers:

up to four types of shares
contributions for partnership shares taken from pre-tax salary
regular statements of your share holding
the payment of dividends

Your company will write to you with details of your plan if you are eligible. You can find out more information about SIPs below.

What is a Share Incentive Plan?

Share Incentive Plans (SIP) were first introduced in The Finance Act 2000 and were initially referred to as the All Employee Share Ownership Plan (AESOP).

SIP can offer all or a combination of the four different types of shares detailed below:

Free shares

Employers can give employees up to £3000 worth of free shares per annum free of income tax and National Insurance Contributions (NIC)
All employees must be invited to take part in the award on the same terms but awards may be varied depending on remuneration, length of service, hours worked or performance (targets must be fair, objective measurable and achievable)
Free Shares have a Holding Period set by the employer of 3-5 years
Free shares can be sold after the end of the Holding Period, however in order to be sold free of income tax and NIC liability the shares must remain in the plan for 5 years

Partnership shares

Employees can purchase shares out of their pre-tax salary subject to a maximum of £125 per month (£1500 per annum) or 10% of their salary whichever is the lower amount
Partnership shares do not have a Holding period and can therefore be removed from the plan at any time, however the sale of Partnership Shares may result in the forfeiture of some or all of the linked 'Matching Shares' which have not been held for the relevant Holding Period
In order to be sold free of income tax and NIC, Partnership Shares must remain in the plan for 5 years from the purchase date
Contributions can be amended, stopped or re-started at any time although the company may limit the number of times this can be done within a set period

Indicative tax relief on partnership contributions

The table below indicates the tax relief available:

Monthly Contribution (Gross Pay)	Cost of Shares to Basic Rate Tax Payer*	Cost of shares to Higher Rate Tax Payer**
£10 (min)	£6.80	£5.80
£50	£34.00	£29.00
£100	£68.00	£58.00
£125 (max)	£85.00	£72.50

* Based on income tax of 20% and NIC of 12%

** Based on income tax of 40% and NIC of 2%

Matching shares

Employers may award Matching Shares to employees who purchase Partnership Shares up to a maximum of two Matching Shares for each Partnership Share purchased
The holding period for Matching shares can be set between 3 and 5 years†
Shares must remain in the plan for 5 years to be sold free of income tax and NIC liability
The sale of Partnership shares may result in the forfeiture of Matching shares which have not been held for the relevant Holding Period

† If you are a participant in your employers' SIP, please refer to your plan rules for specific details of Holding Periods and forfeiture rules.

Dividend shares

Some plans may offer a Dividend Reinvestment Plan, which enables participants to use their dividend to purchase further shares in their employing company instead of receiving cash. The company can choose to make the DRIP optional or compulsory
The maximum amount that can be re-invested is £1,500 per annum
The holding period for Dividend Shares is 3 years

What is a holding period?

A Holding Period is the period of time set by the Company during which you must keep your shares and are unable to sell them. This is a minimum of 3 years, but can be up to a maximum of 5 years, please refer to your Plan brochure.

Holding periods do not apply to Partnership shares.

What is a forfeiture period?

A Forfeiture Period is the period of time set by the Company (up to a maximum of 3 years), during which Free or Matching Shares may be forfeited if you leave employment. Shares will not be forfeited if you leave employment for any of the reasons below:

Injury or disability
Redundancy or transfer
Change of assoc company status or control
Retirement on or after retirement age
Death

For specific details of Forfeiture periods please refer to your Plan brochure.

What are available, conditional and locked-in shares?

Locked-in shares

Shares which have not been held for the relevant 'Holding Period' and therefore cannot be sold or transferred.

Conditional shares

Shares which have been held for the relevant 'Holding Period' but would still be subject to income tax and NIC if sold or transferred.

Available shares

Shares which are no longer subject to income tax and NIC if sold or transferred.

The table below shows the different types of plan shares and at which stages of the plan they are 'Locked-in', 'Conditional' or 'Available':

Plan Share Type	0-3 years	3-5 years	5 years
Free	Locked in	Locked in/Conditional**	Available
Partnership	Conditional*	Conditional*	Available
Matching	Locked in*	Locked in/Conditional**	Available
Dividend	Locked in	Available	Available

* The sale of Partnership Shares may result in the forfeiture of locked-in Matching Shares which have not been held for the relevant holding period.

** If your employing company has specified a Holding Period of more than 3 years these shares will remain Locked in (Please refer to your Plan brochure for details).

Sale of shares

SIP shares must be sold on a first in first out basis (FIFO) i.e. the shares held in the plan the longest must be sold first.

For example:

Mr Smith receives an annual Free share award each January of 100 shares and contributes to the Partnership Plan to purchase shares on a monthly basis.

Mr Smith's SIP holding before sale:

	Shares Awarded
Year of Award	2002	2003	2004	2005	2006
Free	100	100	100	100	100
Partnership	50	50	50	50	50
Total	750

Using the above example, if Mr Smith chose to sell 200 of his SIP shares in March 2006, FIFO rules dictate that he cannot specify which plan element he wishes to sell e.g Free, Partnership.

Mr Smith can only sell a number of plan shares. Therefore using the FIFO rule the 100 Free shares awarded in 2002 must be sold, together with the 50 Partnership shares awarded in 2002 and 50 of the 100 Free shares awarded in 2003 (The 2003 Free shares are sold rather than the 2003 Partnership Shares because they were awarded first).

Mr Smith's SIP holding after sale:

	Shares Awarded
Year of Award	2002	2003	2004	2005	2006
Free	0	50	100	100	100
Partnership	0	50	50	50	50
Total	550

Share Type	On award	Shares held 0-3 years	Shares held 3 - 5 years	After 5 years
Free	No income tax or NIC	Possible forfeiture (refer to plan rules for details)	Income tax and NIC are charged on the lower of: a) market value when acquired b) market value as at the date shares are taken out of the plan	No income tax or NIC
Partnership	No income tax or NIC	Income tax and NIC are charged on the market value ar the time the shares are taken out of the plan	Income tax and NIC are charged at the lower of: a)Amount of the contribution to buy shares b) market value when taken out of the plan	No employer NIC charges
Matching	No income tax or NIC	Possible forfeiture (refer to plan rules for details)	Income tax and NIC are charged on the lower of: a) Market value when acquired b) market value when taken out of the plan	Shares grow in value free of CGT and other tax liability
Dividend	No income tax or NIC are payable on dividends to purchase dividend shares	Cannot be sold	No penalty