With the ongoing recession, a SIP has been able to hold its own in the financial world and many have benefitted from this method of saving.
What is a SIP?
A Sip is a savings plan and is short for Shared Incentive Plan.
They have been around in the UK since the early 2000’s but not widely known about by employees. Smaller companies have the option to offer these to their emplooyees and due to the fact of their success rate, this may soon become a more popular way of saving.
Those working in the public sector or self employed workers may not be able to become involved due to the ‘share’ factor.
3 Types of SIP
Free Shares + Partnership Shares + Matching Shares
1. Free shares
Employers can give free shares worth up to £3,000 a year to employees, free of income tax and National Insurance (NICs).
2. Partnership shares
Employees can buy shares from their pre-tax weekly or monthly wage, up to a limit of the lower of £1,500 a year or a tenth (10%) of salary.
3. Matching shares
Employers can match each partnership share bought by employees with up to two free shares.
SIP – Information
The above information was an extract from …
“More tax breaks
As well as the tax relief on contributions, SIP savers enjoy a few more tax breaks.
Any dividends paid out on shares bought via SIPs can be reinvested into more shares, but these dividend shares are limited to a maximum of £1,500 a year. Any dividends in excess of this limit are paid to the shareholder and taxed in the normal way.
All free, partnership, matching and dividend shares must be held inside the SIP for at least three years or the tax relief granted on purchase will be clawed back. If withdrawn between three and five years, income tax and NICs are due on the lower of the salary used to buy the shares and their market value at the time of removal.
However, after being held for five years, then all SIP shares become completely free of tax. From this point, they can be left to grow, tax-free, inside the plan or be withdrawn, also tax-free. Also, there is no Capital Gains Tax liability when shares are sold inside, or withdrawn from, a SIP.
Therefore, for the maximum tax breaks, you should keep hold of SIP shares for at least five years. Also, if you’re forced to leave your employer due to disability, redundancy, retirement or death, then all SIP shares can be withdrawn tax-free.”
Benefits of starting a SIP
Had you invested the maximum of £1500 a year, in ten years you would be receiving a payment in the region of £45K. Surely there are not a lot of places where such an investment over this recent recession would have been so successful.