Understanding SIP forfeiture and withdrawal rules in advance is important, because poor timing can lead to unexpected tax charges or, in some cases, the loss of shares.
You can use the Share Incentive Plan Calculator to estimate how much tax you might owe based on your share values and holding period.
How Each SIP Share Type Is Affected When You Leave
What Happens to Free Shares on Resignation?
Free Shares are shares given to you by your employer at no cost, but they usually come with certain conditions. In most SIPs, you are required to hold them for around 3 to 5 years. If you leave your job before this period, your employer may forfeit (take back) the shares.
However, if you qualify as a “good leaver” — for example due to redundancy, serious ill health, disability, or retirement — then HMRC rules generally allow you to keep your free shares without penalty, even if the holding period hasn't been completed.
What Happens to Partnership Shares?
Partnership shares are bought using your pre-tax salary, so they're technically yours from the start. Under HMRC SIP rules, your employer cannot force you to forfeit them when you leave.
That said, if you withdraw them before holding them for five years, they'll be removed from the plan and you'll pay income tax and National Insurance on their current market value, not the price you originally paid. This is where losing SIP shares on leaving (in terms of tax relief) often catches people off guard. Make sure to understand your full SIP entitlements before you leave.
What Happens to Matching Shares?
Matching Shares are shares your employer gives you in addition to your partnership shares, usually in a 1:1 or 2:1 ratio.
Like free shares, they are also subject to a holding period, and if you leave your job early without a qualifying reason, these shares may be forfeited.
In some SIP structures, losing matching shares can also affect related partnership shares, which is why it is very important to understand your specific plan rules.
What Happens to Dividend Shares?
Dividend Shares are the shares that are purchased using dividends earned from your other SIP shares.
These usually come with a 3-year holding period. If you leave your job or withdraw them before this period, they may be removed from the plan, and depending on timing, they can also become subject to tax.
The rules differ depending on share type particularly which share types are at risk of forfeiture when you resign.
Tax Implications of Leaving a SIP Early
This is where Share Incentive Plan exit rules get complicated. The key principle under HMRC rules is this: shares kept in a SIP for five years are free from income tax and National Insurance on withdrawal. Leave early, and that protection disappears.
Here's what you could owe:
- Income Tax on the market value of shares at the time they leave the plan.
- National Insurance contributions on the same value.
- Capital Gains Tax (CGT) may apply if you later sell shares and they've grown in value since leaving the plan.
Critical Note
The tax is calculated on the market value at the date of withdrawal, not what you originally paid. If share prices have risen significantly, this can result in a substantial tax liability. Make sure to calculate the value of your SIP shares before handing in your notice.
Frequently Asked Questions
Can my employer take back my SIP shares if I resign?
Your employer can only forfeit **free shares** and **matching shares** if you leave before the end of the holding period and you don't qualify as a "good leaver." **Partnership shares** cannot be forfeited because they are purchased from your own salary.
What counts as a "good leaver" under HMRC SIP rules?
HMRC defines good leaver reasons as redundancy, retirement, serious ill health or disability, a TUPE transfer, or the business you work for being sold.
Will I pay tax on SIP shares I withdraw after leaving?
Yes, if your shares have been in the plan for less than five years, income tax and National Insurance will apply to their market value at the point of withdrawal.
Do SIP rules change if I'm made redundant rather than resigning?
Yes, significantly. Redundancy is a qualifying "good leaver" reason, which means you can generally keep all your **free shares**, **matching shares**, and **partnership shares** without triggering forfeiture, regardless of how long they've been in the plan.