Guidance

Share Incentive Plans: a guide for employees

Updated 20 October 2025

This guidance explains the rules of Share Incentive Plans and the tax and National Insurance advantages that apply when you buy or are given shares in the company you work for.

How Share Incentive Plans work

If your company decides to set up a Share Incentive Plan, it can choose to offer you one or a combination of four types of plan shares. These are:

• free shares
• partnership shares
• matching shares
• dividend shares

The plan works by keeping the shares in a trust for you until you either leave your job or decide to take shares from the plan. The shares must be kept in the plan trust for a specified number of years to give you the full tax benefits.

The Share Incentive Plan rules described in this guide act as the framework for plans set up by employers and provide them with some choices. You should check the details of your own employer’s plan.

Free shares

Your employer can award you up to £3,600 worth of free shares in any tax year. A tax year runs from 6 April one year to 5 April the next.

An employer may link awards of shares to its employees’ performance, for:

• your individual performance
• the performance of your team, division or other work unit

If the award is linked to performance, the company will set out clear targets in advance and tell you what those targets are.

Partnership shares

You can buy partnership shares using your gross pay. However, the limits on how much you can spend on partnership shares are the lower of either:

• £1,800 per tax year
• 10% of your total salary for the tax year

Your employer may specify whether all or only part of your salary is to be used when calculating the maximum percentage of salary to be spent on partnership shares. For example, a scheme may exclude a particular description of earnings, such as overtime or bonus payments.

Buying shares using your gross pay means that you will not have to pay income tax or National Insurance contributions on the money that you use to buy them.

National Insurance contributions savings may not affect you if you would not have paid National Insurance contributions on the money because you earn below the employee earnings threshold.

Tax savings may not affect you if you earn below the personal allowance.

Matching shares

If you buy partnership shares, your employer can match them by giving you up to two free shares for every partnership share you buy. You will need to check the details of your employer’s plan to find out if your employer offers any matching shares.

Dividend shares

As a shareholder you may be paid dividends on your shares.

If you receive dividends on your free, partnership or matching shares, your employer may allow you to use those dividends to buy more shares to be held in the plan. These are dividend shares. There is no limit on reinvestment into dividend shares. You will not have to pay income tax on these reinvested dividends as long as the shares you buy with your dividends are held in the plan for at least 3 years.

If you do not use your dividends to buy more shares in this way, they will be taxed in the same way as other dividends. If you are a higher rate taxpayer, you will need to enter the details on your Self Assessment tax return.

Advantages of Share Incentive Plans

If you receive free shares in the company you work for, you usually have to pay Income Tax and National Insurance contributions on them because they are part of what you earn from your job.

However, if you take part in a Share Incentive Plan, you will not have to pay Income Tax or National Insurance contributions on the value of free or matching shares awarded to you.

The longer you keep the shares in the plan, the less tax and National Insurance contributions you will pay when you finally take them out.

Your plan shares are held in a trust for a holding period of at least 3 years. Your employer can increase this holding period to up to 5 years.

You can take your partnership shares out of the plan at any time, but you will normally have to pay some tax and National Insurance contributions on them if you take them out less than 5 years from the date that you bought them.

To get full Income Tax and National Insurance contribution advantages, you will have to keep all the shares in the plan for at least 5 years (or 3 years for dividend shares).

If you keep your shares in the plan until you sell them, you will not have to pay Capital Gains Tax on the gain you make, however much the shares grow in value.

Impact of buying shares on benefits

Buying partnership shares under the plan may affect your entitlement to contribution based, earnings related and means tested state benefits, tax credits and work related payments.

You will not have paid National Insurance contributions on the pay that you used to buy the partnership shares. As a result, you may not have paid enough National Insurance contributions to qualify for certain benefits. This will only affect a small number of people.

Shares can go down in value as well as up. So, if you’re thinking of buying partnership shares under the plan, you might want to consider whether you could afford to make a loss if the shares do not perform as well as you hope.

Find more information on Share Incentive Plans and your entitlement to benefits.

Joining a Share Incentive Plan

Share Incentive Plans are all-employee plans, so they cannot be restricted to particular groups or individuals. However, companies can exclude employees who have not worked for the company for a minimum period of time. Individual companies can set their own minimum limit, but it cannot be longer than 18 months.

Part-time employees have the same rights to join as full-time employees.

You can take part right up to retirement.

Income tax and National Insurance advantages will remain in place if you take your shares out of the plan early because you retire at or after the age specified in the plan rules.

Maximum share limits

Your employer can offer you:

• free shares — worth up to £3,600 per year
• partnership shares — bought with up to £1,800 or 10% of your salary per tax year, whichever is lower
• matching shares — up to two matching shares for each partnership share you buy
• dividend shares — no limit

Your employer can set lower limits than these, which will be set out in the plan rules.

Your company’s plan may link the award of free shares to your:

• level of pay
• length of serice
• hours worked
• performance

The number of partnership shares you receive depends on how much of your income you contribute. The number of matching shares you may receive, if any, depends on the number of partnership shares you buy and the matching ratio set by your employer.

The shares must be ordinary shares in the company. However, your employer can put certain conditions on them. For example, the shares may have limited or no voting rights.

You may have to give up your free and matching shares if you leave the company within 3 years of receiving them. You may also have to give up your matching shares if you withdraw partnership shares from the plan within 3 years.

Holding period

You can take your partnership shares out of the plan at any time. But if you take them out within 3 years of the award you may lose the matched shares that were awarded with them.

You cannot take free, matching or dividend shares out of the plan within the first 3 years.

Your employer can extend this period to up to 5 years for free and matching shares.

If you leave your employment, your shares must come out of the plan, whether the time limits have passed or not. Some employers will arrange for free and matching shares awarded to you to be forfeited if you leave within a period of up to 3 years after the award.

If you take your shares out of the plan within the first 5 years, you may have some tax and National Insurance contributions to pay.

Share Incentive Plans and other share schemes

There are other schemes or plans that give you tax advantages for holding shares in the company you work for. You may already have shares or rights to acquire shares through them.

They are:

• Save As You Earn (SAYE) share option schemes
• Company Share Option Plans (CSOP)
• Enterprise Management Incentive (EMI)

You can take part in a SAYE share option scheme, Company Share Option Plan or Enterprise Management Incentive scheme at the same time as you take part in a Share Incentive Plan.

Find more information on Tax and Employee Share Schemes: Overview.

Leaving a Share Incentive Plan

Your shares come out of the plan as soon as you leave your job. Depending on the rules of your employer’s Articles of Association, you may have to sell your shares when you leave and you may have some tax and National Insurance contributions to pay.

If the company you work for is taken over

If the company is taken over, the old company’s shares in the plan are usually exchanged for the new company’s shares. Income tax reliefs continue to apply to the shares you have already been awarded, but tax charges will apply to any that you take out early following the normal rules.

The trust set up to administer the plan for the old company shares stays in place at least until all of those plan shares have come out of that plan.

If the new company wishes to make awards of shares after the takeover it will need to set up a new plan (if it does not already have an approved plan) — it cannot use the plan you have been participating in to award shares in the new company.

Moving abroad

If you are posted abroad, to work for the same company or a member company of the group, shares you already have can stay in the plan. When you are abroad, you may not be able to enjoy the tax advantages of the plan unless you are still subject to UK tax.

Your employer will still be able to offer you free, partnership, matching and dividend shares if they so wish, but you may have to pay local overseas taxes and local social security contributions on their value.

Death in service

In case of death, your shares have to come out of the plan. The company may require the shares to be sold back to them. If not, then the shares will become the property of your estate.

There will be no Income Tax or National Insurance contributions to pay on these shares.

The personal representatives of your estate may have to pay Capital Gains Tax if they sell the shares for more than they were worth at the date of your death.

Find more information on Capital Gains Tax: detailed information.

Tax and National Insurance contribution implications

There are no tax or National Insurance contributions to pay when you are awarded shares under the plan. There may be tax and National Insurance contributions to pay if you leave the company or take your shares out of the plan within 5 years of joining it. This will depend on why you take the shares out, and how long they have been in the plan.

Income Tax or National Insurance contributions will not be payable on the value of the shares if your shares come out of the plan because you leave the company for any of the following reasons:

• injury or disability
• redundancy
• the company or part of the business you work for is sold out of the group
• retirement
• death

If you take the shares out for any other reason, you may have to pay Income Tax or National Insurance contributions.

The amount of tax and National Insurance contributions you will have to pay depends on how long the shares have been in the plan.

You can take partnership shares out of the plan at any time. You cannot take free, matching or dividend shares out within the first 3 years. Your employer can extend this period up to 5 years for free and matching shares.

In circumstances where you can take your shares out of the plan, for example, when you leave employment, Income Tax (and National Insurance contributions if the shares are readily convertible assets) may be chargeable. This could be within 3 years, or 3 to 5 years of receiving them.

The changes do not apply if the shares come out of the plan because you leave your job for one of the exempt reasons listed earlier in this section .

Free shares and matching shares

You do not pay Income Tax or National Insurance contributions on the value of the shares when you acquire them.

If you take the shares out of the plan during the first 3 years, you will have to pay Income Tax and National Insurance contributions on the market value of the shares when you take them out of the plan.

If you take the shares out of the plan during 3 years to 5 years, you will have to pay Income Tax and National Insurance contributions on the lower of the market value of the shares. This will apply from the time when you acquired them or, when they are withdrawn from the plan.

If you take the shares out of the plan after 5 years, you do not pay Income Tax or National Insurance contributions.

Partnership shares

You do not pay Income Tax or National Insurance contributions on the money you use to buy the shares when you acquire them.

If you take the shares out of the plan during the first 3 years, you will have to pay Income Tax and National Insurance contributions on the market value of the shares when you take them out of the plan.

If you take the shares out of the plan during 3 years to 5 years, you will have to pay Income Tax and National Insurance contributions on the lower of the pay used to buy the shares, or the market value of the shares when they are taken out of the plan.

If you take the shares out of the plan after 5 years, you do not pay Income Tax or National Insurance contributions.

Dividend shares

You do not pay Income Tax or National Insurance contributions on dividends used to buy dividend shares when you acquire them.

If you take the shares out of the plan during the first 3 years, the dividends that you used to buy the shares are taxed as a dividend in the year when you take the shares out of the plan.

If you take the shares out of the plan during 3 years to 5 years, you do not pay Income Tax or National Insurance contributions.

If you take the shares out of the plan after 5 years, you do not pay Income Tax or National Insurance contributions.

Paying tax owed

Your employer will normally deduct the Income Tax and National Insurance contributions under PAYE. If you leave the company and you are a higher rate taxpayer, you may have further income tax to pay if your employer only deducted basic rate tax. You should give details of your shares and the tax you have paid in your Self Assessment tax return.

If the shares can be readily converted into cash, for example, if they are listed on the stock exchange, then your employer will deduct the Income Tax and National insurance contributions under PAYE.

If they are not readily convertible assets, there will be no National Insurance contributions to pay, but you may have to pay Income Tax and you will have to give details about the shares in your Self Assessment tax return.

If you need to submit a Self Assessment tax return to report your Capital Gains Tax you can use HS287 Capital Gains Tax and employee share schemes (2023) to help you complete the Capital Gains Tax summary pages.

Find more information on Self Assessment: Capital gains summary (SA108).

If you do not usually send a tax return, you need to register by 5 October following the tax year you received the income. Once you’ve registered you’ll get a letter telling you to register for Self Assessment.

In some circumstances you can use the real time reporting service to report and pay your Capital Gains Tax.

If you are registered for Self Assessment and use the online reporting tool, you will still need to include details of the sale and the tax paid on your Self Assessment tax return afterwards.

Tax on dividend shares

You will not have to pay income tax on dividend shares if:

• you take them out of the plan after 3 years
• you take them out because you leave your job for one of the reasons listed in the Tax and National Insurance contributions implications section.

If you take the shares out for any other reason less than 3 years after they went into the plan, you will be taxed on the value of the original dividend, but you will only have to pay more tax if you are a higher rate taxpayer.

Your employer will give you the details that you will have to enter on your Self Assessment tax return.

Dividend shares are not subject to National Insurance contributions.

Capital Gains Tax

Share Incentive Plans give you a special Capital Gains Tax advantage. If you keep your shares in the plan until you sell them, you will not have to pay Capital Gains Tax on the gains you make. If you take the shares out of the plan before you sell them, Capital Gains Tax may be due.

Capital Gains Tax is payable if the total amount of capital gains you make in a year less any capital losses exceed the annual exempt amount.

You calculate the gain on your shares by deducting from the sale price the market value on the date they cease to be subject to the plan plus costs of disposal, for example, fees charged by an agent who arranges the sale for you.

If your gain is no more than the annual exempt amount (also taking into account any other gains on other chargeable assets in that tax year), you will not have to pay any Capital Gains Tax. Otherwise, you will have to pay Capital Gains Tax on the excess over the annual exempt amount. You have an annual exempt amount for each tax year but you cannot carry it forward if you do not use it.

If the sale price is less than the exit value, you will make a loss for Capital Gains Tax. You can set the loss against capital gains of the same year and carry forward any excess to future years.

Find more information on Capital Gains Tax: what you pay it on, rates and allowances.

Taking shares out of the plan

Share Incentive Plans give you a special Capital Gains Tax advantage. If you keep your shares in the plan trust for a specified number of years, you will receive the full tax benefits and you will not have to pay Capital Gains Tax on the gains you make when you remove them to sell them immediately.

Paying Capital Gains Tax

How much Capital Gains Tax you have to pay depends on the level of your income liable to income tax. You add the gains chargeable to Capital Gains Tax onto your income liable to income tax and pay Capital Gains Tax at the appropriate rates. Capital Gains Tax is payable on 31 January after the end of the tax year in which the shares are sold.

Find more information on Capital Gains Tax: what you pay it on, rates and allowances.

Self Assessment

If you need to submit a Self Assessment tax return to report your Capital Gains Tax you can use HS287 Capital Gains Tax and employee share schemes (2023) to help you complete the Capital Gains Tax summary pages. Find more information on Self Assessment: Capital gains summary (SA108).

If you do not usually send a tax return, you need to register by 5 October following the tax year you received the income. Once you’ve registered you’ll get a letter telling you to register for Self Assessment.

In some circumstances you can use the real time reporting service to report and pay your Capital Gains Tax. If you are registered for Self Assessment and use the online reporting tool, you will still need to include details of the sale and the tax paid on your Self Assessment tax return afterwards.

Other tax considerations

While your shares are in the plan, you or the trustees of the plan may receive payments in cash or in kind in relation to your shares. For example, the receipts may follow a rights issue. These are capital receipts.

You pay income tax and National Insurance Contributions under PAYE on any capital receipts you receive within 5 years (3 years for dividend shares) of the shares being awarded to you.

Transferring shares into Individual Savings Accounts (ISAs)

You can transfer your shares directly into the stocks and shares part of an ISA, as long as you do so within 90 days of taking them out of the plan. The transfer is free of Capital Gains Tax.

The market value of the shares at the date of the transfer counts as a subscription to your ISA. This means that this market value, together with any cash subscription you make during the same tax year, cannot exceed the ISA subscription limit.

Transferring shares into your stakeholder pension

You can transfer your shares directly into a stakeholder or personal pension, as long as you do so within 90 days of taking them out of the plan. Not all pension schemes will allow you to do this, so you should check with the scheme administrator first.

When you transfer your shares into a personal or stakeholder pension, HMRC will credit your pension account as if you had paid basic rate tax on the shares. If you pay tax at the higher rate, you may also claim higher rate tax relief on your Self Assessment tax return.

Once transferred into a personal or stakeholder pension, the shares may only be used to provide benefits under the rules of the pension scheme.

Find more information on pension scheme administration.

Transferring shares to others

You cannot transfer shares to others while they are held in the plan. However, once the shares come out of the plan, and if your company allows it, you will be able to transfer the shares to someone else, such as a relative. You will have to pay any income tax or National Insurance contribution charges that you owe before you can make the transfer.

If you transfer the shares to someone else, apart from your spouse or civil partner, you may have to pay Capital Gains Tax on any gain in the value of the shares after you took them out of the plan.

Keeping records

You must keep full records of your participation in a Share Incentive Plan. For example, you will need to keep a record of when you were awarded free or matching shares, and when you bought partnership shares. This is because you may have to pay income tax or National Insurance contributions if you leave the company or take your shares out of the plan within 5 years.

Tax returns

If you keep your shares in the plan until you sell them, it is unlikely that you will need to complete a tax return unless:

• you are a higher rate taxpayer
• your employer did not deduct the full amount of the tax due under PAYE when you tool the shares out of the plan

If you do have to complete a tax return, you will need to complete the share scheme pages. Find more information on how to complete your tax return for Self Assessment.

If you keep your shares after you take them out of the plan and dispose of them later for more than they were worth when you took them out of the plan, you may have to pay Capital Gains Tax.

If you do not usually send a tax return, you need to register by 5 October following the tax year you received the income. Once you’ve registered you’ll get a letter telling you to register for Self Assessment.

Find more information about how to register for Self Assessment.