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HMRC internal manual

Shares and Assets Valuation Manual

Tax Advantaged Share Schemes: Share Incentive Plans (SIP)

The Share Incentive Plan legislation provides for three main types of plan shares to be used. They are:

  • free shares - employers can give each employee free shares worth up to £3,600 each year,
  • partnership shares - employees can use up to £1,800 per year out of pre-tax and pre-National Insurance contributions pay to buy partnership shares, and
  • matching shares - employers can give matching shares at a ratio of up to two matching shares for each partnership share bought by the employee.

Companies can also allow an employee to use dividends from his or her plan shares each year to buy further shares in the company through the plan. These are called dividend shares.

Detailed guidance regarding SIPs is available in the Employee Tax Advantaged Share Scheme User Manual at ETASSUM20000.

A company will need to establish the value of the shares being used in a SIP if there is:

  • an award of free and matching shares,
  • a purchase of partnership shares with no accumulation period,
  • a purchase of partnership shares with an accumulation period - the value will need to be established at the beginning of the accumulation period and at the acquisition date,
  • dividend reinvestment - the value will need to be established on the date that dividend shares are acquired with the cash dividend,
  • a participant ceases employment during the first two years of an award of free and matching shares,
  • a withdrawal of partnership shares from the plan within five years of acquisition.

Market value for SIP purposes has the same meaning as it does for CGT purposes. However, the “initial market value of free shares” cannot exceed £3,600 in any tax year. For this purpose, the initial market value disregards restrictions to provide an unrestricted market value.

There may be a number of occasions when SIP valuations are required. Companies can therefore apply to agree a price for an extended period of up to six months from an occasion of valuation.

The company will need to confirm that it is not then aware of any circumstances that will affect the value of the shares during that period.

If circumstances do then change during the period, which affect the value of the shares:

  • the period will end, and
  • the company will need to come back to SAV to agree a valuation should an occasion of value have arisen.

We are neither bound to agree that a value shall apply over an extended period nor that the period should be as long as six months. You should not agree to an extended period in circumstances where the value of shares is likely to increase rapidly.

If you agree an extended period, you should set out the defined period and the events that may bring it to a close such as:

  • any change (completed or in active contemplation at the occasion of valuation) in the share or loan capital,
  • any declaration of a dividend on any class of share,
  • the publication of any annual accounts, interim results or other announcement,
  • any arms length transactions (completed or in active contemplation) in shares in the company,
  • negotiations or preparations for a flotation or sale of the company, and so on.

You should make it clear that a price agreed for an extended period applies only for SIP purposes and for no other fiscal event.

You may, of course, agree a valuation for one date alone.


  Additional Guidance: SVM150000