ACCA Advanced Taxation (ATX) Practice Exam

What is the maximum value of 'free shares' that an employer can gift to employees in a SIP?

1. £5,000

2. £1,000

3. £3,600

4. £2,500

The correct answer is: £3,600

In the context of Share Incentive Plans (SIPs) in the UK, the maximum value of 'free shares' that an employer can gift to employees without triggering a tax charge is set by legislation. Currently, the limit for free shares that can be awarded to employees in a SIP is £3,600 per tax year. This amount allows employers to encourage employee ownership and incentivizes staff without imposing immediate tax burdens on them. The shares given under this scheme are typically subject to specific conditions, such as being held in the plan for a minimum period, which further enhances the benefits of SIPs for both employers and employees. By providing free shares up to this limit, employers can foster a sense of ownership and loyalty among staff, which can have positive effects on productivity and job satisfaction. It is crucial for both employers and employees to understand these limits to maximize the benefits of such incentive schemes while ensuring compliance with tax regulations.