Share Incentive Plans (SIPs) - when you leave the firm
Discussion
Appreciate anyone's help or guidance on this, Google and HMRC website have not really yielded an answer.
I was part of an SIP scheme for the last 6 years of which I bought partnership shares for the first 2 years of employment (and these were all matched by the employer). I was planning to hold all stock for 5 years (from the last buy / matched date) to avoid any tax implications.
However, I've just left the firm (my decision) and now received communication from the Share Scheme provider that I need to sell the stock and I've been advised of a tax bill. Does this sound normal practice, is it not possible to hold all stock until they are free of any tax liability even though I've left?
Thanks.
I was part of an SIP scheme for the last 6 years of which I bought partnership shares for the first 2 years of employment (and these were all matched by the employer). I was planning to hold all stock for 5 years (from the last buy / matched date) to avoid any tax implications.
However, I've just left the firm (my decision) and now received communication from the Share Scheme provider that I need to sell the stock and I've been advised of a tax bill. Does this sound normal practice, is it not possible to hold all stock until they are free of any tax liability even though I've left?
Thanks.
It’s probably going to depend on your scheme rules, but from your reference to “partnership shares” I’m guessing that these a a different class (possibly limited to holding by current employees?) to any the firm has listed?
With equity plans of all sorts being designed to encourage long term retention, it certainly wouldn’t be a surprise if there were consequences to leaving before they were fully vested/capable of being cashed in at favourable rates.
With equity plans of all sorts being designed to encourage long term retention, it certainly wouldn’t be a surprise if there were consequences to leaving before they were fully vested/capable of being cashed in at favourable rates.
LooneyTunes said:
It’s probably going to depend on your scheme rules, but from your reference to “partnership shares” I’m guessing that these a a different class (possibly limited to holding by current employees?) to any the firm has listed?
With equity plans of all sorts being designed to encourage long term retention, it certainly wouldn’t be a surprise if there were consequences to leaving before they were fully vested/capable of being cashed in at favourable rates.
Thanks, you're probably right regarding the vesting period / handcuffs, the tax charge is just a number with no explain....which is helpful. I'm navigating my old HR for a contact who can provide some more colour. Lifting this text directly from HMRC, I can't find any clear view on what it means if you leave rather than just hold the stock. I may have wrongly assumed that so long as you didn't sell them within 5 years from date of purchase they were tax free...With equity plans of all sorts being designed to encourage long term retention, it certainly wouldn’t be a surprise if there were consequences to leaving before they were fully vested/capable of being cashed in at favourable rates.
Share Incentive Plans (SIPs)
If you get shares through a Share Incentive Plan (SIP) and keep them in the plan for 5 years you will not pay Income Tax or National Insurance on their value. You will not pay Capital Gains Tax on shares you sell if you keep them in the plan until you sell them.
If you take them out of the plan, keep them and then sell them later on, you might have to pay Capital Gains Tax if their value has increased.
There are 4 ways you can get shares under SIPs.
Free shares
Your employer can give you up to £3,600 of free shares in any tax year.
Partnership shares
You can buy shares out of your salary before tax deductions. There’s a limit to how much you can spend - either £1,800 or 10% of your income for the tax year, whichever is lower.
What you have been told sounds about right.
When you leave a company you have to leave the SIP scheme which means selling all the shares. You cannot keep then within the scheme.
Any shares that have been in the scheme for 5 years or more are ‘tax free’, any that have been within the scheme for 5 years or less will incur a tax charge - you can’t escape this.
When you leave a company you have to leave the SIP scheme which means selling all the shares. You cannot keep then within the scheme.
Any shares that have been in the scheme for 5 years or more are ‘tax free’, any that have been within the scheme for 5 years or less will incur a tax charge - you can’t escape this.
I got shafted on the tax element of sip shares that I was forced to sell when unexpectedly leaving the company before the 5 years had ran.
I say "forced to sell" because I would have been quite happy for the shares to just remain in the plan administrators account for the full 5 years but that's not an option, you have to cash them in and take the substantial hit.
Firstly I lost the employers contributions of the share allocation, I then assumed my outstanding tax liability would be the Income Tax I had avoided paying by purchasing the shares through my pre tax pay, but no.. the tax liability had transfered to 20% of the value of the shares at time of sale.
As the shares had increased in value throughout my time purchasing them the tax liability had gone from the approx £500 I'd 'avoided' paying in Income Tax when purchasing them to £2,500 as 20% of their then value.
Just as a final kick in the balls I kept hold of the shares I was left with and they're now 40% below the price I was taxed at.
I say "forced to sell" because I would have been quite happy for the shares to just remain in the plan administrators account for the full 5 years but that's not an option, you have to cash them in and take the substantial hit.
Firstly I lost the employers contributions of the share allocation, I then assumed my outstanding tax liability would be the Income Tax I had avoided paying by purchasing the shares through my pre tax pay, but no.. the tax liability had transfered to 20% of the value of the shares at time of sale.
As the shares had increased in value throughout my time purchasing them the tax liability had gone from the approx £500 I'd 'avoided' paying in Income Tax when purchasing them to £2,500 as 20% of their then value.
Just as a final kick in the balls I kept hold of the shares I was left with and they're now 40% below the price I was taxed at.
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