Last blog post we looked at the risk-free option of saving into Sharesave. This post will look at a different option, the Share Incentive Plan. It has more investment risk than Sharesave but enjoys some other significant benefits. Again it is a great staff benefit and a key option for building future wealth.
- Shares are purchased from gross (before tax) salary.
- Selling the shares after 5 years is tax-free.
- Phoenix will give you a free share for every one bought up to a certain level (doubling your investment).
- Buying and selling shares is flexible.
- If you sell within 3 years you lose the ‘free’ matching shares and owe tax.
- Tax is due if you sell between 3 and 5 years.
- The Phoenix share price might fall.
The Share Incentive Plan (SIP) is a tax-efficient way to purchase shares in Phoenix Group plc. You can choose to give up between £10 and £150 (or 10% of salary, if lower) of salary each month to invest in the shares instead. Like salary sacrifice pension contributions, the shares are purchased from your gross salary (i.e. before tax, national insurance and student loans, if applicable). Phoenix Group will also provide matching shares on the first £50 of your investment. Therefore, to purchase £100 of Phoenix Group plc shares will only cost a basic rate tax payer £34, a higher rate tax payer £29 and an additional rate tax payer £26.50 (assuming no student loans).
Contributions can be started, stopped and adjusted at any time and the shares can be sold and withdrawn at any time. However, depending on how long you hold the shares for depends on the tax treatment when selling the shares. If you hold the shares for at least 5 years, the sale proceeds will be completely free of tax. On shares held for less than 3 years, you will only be able to sell the shares purchased via your salary and you will forfeit any of the matching shares Phoenix purchased on your behalf. The shares able to be sold will be subject to income tax and national insurance based on their value when sold. Between 3 and 5 years, you are able to sell matching shares as well as the shares purchased from your salary. These will be subject to income tax and national insurance based on the lower of the market value at the date you acquired the shares or their value when sold. You are also able to sell dividend shares (shares purchased with dividends from the existing shares) free of income tax and national insurance.