How a Share Incentive Plan Is Taxed
Updated October 2026 · 2026/27 UK tax year
The tax rules for a SIP depend on how long shares stay in the plan trust and why they leave. Understanding the timeline can mean the difference between paying nothing and paying income tax and National Insurance on the full value.
The holding period timeline
| Shares leave the plan | Income tax and NI | CGT |
|---|---|---|
| Within 3 years | On the value of the shares when they leave | On growth after leaving, from that value |
| Between 3 and 5 years | On the lower of the original value and the value at withdrawal | On growth after leaving |
| After 5 years | None | None while in the plan; on growth after leaving if you keep the shares |
The clock starts from the date shares are awarded (free and matching) or bought (partnership). Each tranche of shares has its own five-year period.
Good leavers
If you leave because of injury or disability, redundancy, retirement, a transfer of the business or the company ceasing to be under your employer’s control, you can take shares out tax-free regardless of how long they have been held.
Dividend shares
Dividends on plan shares can be reinvested as dividend shares. They are free of income tax if they stay in the plan for three years. Dividends taken as cash are taxed as normal dividend income.
Moving shares into an ISA
Within 90 days of taking shares out of the plan you can transfer them to a Stocks and Shares ISA. Transfers count towards your annual ISA allowance but shelter future gains and dividends.
Reporting
If shares are withdrawn with an income tax charge, your employer normally deducts tax through PAYE. If you are a higher rate taxpayer and have left the employer, the employer may use code 0T and you may need to report the shares in Self Assessment. HMRC guidance sets out the details in its Employee Tax Advantaged Share Scheme User Manual.
Use our UK SIP calculator to see how holding periods affect what you keep.
Frequently asked questions
When does the five-year period start on SIP shares?
From the date the shares were awarded to you (free and matching shares) or bought for you (partnership shares). Each award has its own five-year clock.
Do I pay tax on SIP dividends?
Dividends reinvested in dividend shares are tax-free if the shares remain in the plan for three years. Dividends paid out as cash are taxed as ordinary dividend income.