Employee SIP Plans - £5000 dividend limit ?

Yobbo

Does anyone know what is the effect of the £5000 tax free dividend limit on employee Share Incentive Plans ? Does the £5k limit apply to SIP dividends or are all dividends received within a SIP income tax free regardless of how large, once held 5 years ? Does it make a difference if the dividend income from the SIP is paid out in cash or automatically reinvested ?


My annual SIP dividend total is over the £5k limit on my unrestricted shares (that I could sell), so would need to consider my options if they are taxable at 32.5% for amounts above £5k. I have no other taxable dividend income with everything else in ISA's.


I would normally just look at my employers staff SIP guide but it won't be updated for another few months and it wasn't mentioned in last years guide.

Dead_keen

Before April 2013 there was a £1,500 limit for the dividends that could be used to buy shares in a SIP. The cash dividends have to be automatically reinvested by the SIP trustee. If it is paid out in cash, it is just a normal dividend that has nothing to do with the SIP or its tax reliefs.

This £1,500 limit then got removed so the SIP trustee could reinvest an unlimited amount into dividend shares. But the employer may have their own limit in the plan rules. Or they may not.

The exemption for dividends shares is different to the current £5,000 (and soon to be £2,000) dividend allowance. So if you received £10,000 dividends on your SIP shares and the SIP trustee used them to buy dividends shares they would be tax free.

As you will know, there can be tax on taking the dividend shares out of a SIP and that'll be explained in the employer guide (or can be googled).