SIP Holding Period Rules: What Happens After 3 and 5 Years?
The single most consequential rule in a Share Incentive Plan — what changes at the 3-year and 5-year marks, and how leaving your job can affect the outcome.
1. The Three Holding-Period Zones
Full tax may apply
Income Tax and NIC generally due on market value at removal.
Reduced tax may apply
Tax on the lower of value at award vs. value at removal.
Generally tax-free
No Income Tax or NIC due on withdrawal.
Check a specific award with the SIP Holding Period Calculator.
2. Why the Clock Starts When It Does
The holding period is measured from each award's own date — not from when you first joined the SIP. Shares awarded in different tax years each carry their own separate 3-year and 5-year clock, which matters if you've participated for several years and are considering a partial withdrawal.
3. Leaving vs Voluntarily Withdrawing
Leaving your job and voluntarily withdrawing shares while still employed can be treated differently depending on your plan's rules. Certain "good leaver" categories — redundancy, retirement, ill-health, death, or a TUPE transfer — can allow more favourable, sometimes tax-free, treatment even before 5 years, subject to your specific plan.
4. Selling Into an ISA
SIP shares can potentially be transferred into a Stocks & Shares ISA within 90 days of leaving the plan without triggering an immediate open-market disposal in the way a straightforward sale might, subject to your available ISA subscription limit for the year. This "90-day rule" is worth knowing about before you decide how to handle shares on leaving.
5. Worked Example: Three Employees
| Employee | Held | Likely outcome |
|---|---|---|
| A | 18 months | Income Tax and NIC generally due on market value at removal |
| B | 4 years | Tax may apply on the lower of award value vs. removal value |
| C | 6 years | Generally free of Income Tax and NIC |
6. Practical Tips
Check your own plan rules before withdrawing, consider timing a withdrawal relative to your own tax year and marginal rate, and consider the ISA transfer route if you're leaving your employer. See also SIP Tax Benefits Explained for the tax mechanics that interact with your holding period.
Frequently Asked Questions
What counts as the "removal" date?
Generally the date shares are formally taken out of the SIP trust — check your plan administrator's process for the exact date used.
Do matching shares and their linked partnership shares share the same clock?
They can be linked by forfeiture terms in some plans, but the statutory holding-period clock still runs from each award's own date — check your specific plan rules.
Does the 3-year rule apply to free shares too?
The general 3-year and 5-year framework applies across free, partnership and matching shares; dividend shares typically have a 3-year holding requirement of their own.
Sources
- HMRC ETASSUM — Share Incentive Plans, tax on withdrawal
- Income Tax (Earnings and Pensions) Act 2003, Schedule 2
- GOV.UK guidance on tax and employee share schemes