UK plans 1980s-style sale of Lloyds shares to Britons

* Trading plan extended until the end of year

* Retail sale set to be biggest privatisation since 1980s

* Sales could enable full government exit in next year

* Retail sale could take place in March next year

* UK has cut stake to under 19 percent from 41 percent (Adds further details on plans)

By Matt Scuffham

LONDON, June 1 (Reuters) - Britain will launch a sale of shares in Lloyds to private retail investors in the next 12 months in what is expected to be the biggest privatisation since Margaret Thatcher's government sold off assets in the 1980s.

It has also extended a facility enabling it to sell more shares in the bank to financial institutions as it disposes of its remaining stake of less than 19 percent in the bailed-out lender, worth about 12 billion pounds ($18 billion).

As well as raising money for the state, the 1980s sales aimed to encourage ordinary Britons to invest in companies, an aspiration shared by the current Conservative government.

Thatcher's Conservative government sold 3.9 billion pounds of shares in British Telecom and 5.6 billion pounds worth of British Gas shares in deals that gave many Britons their first taste of the stock market.

Lloyds was bailed out at a cost to taxpayers of 20 billion pounds during the 2007-9 financial crisis, leaving the government initially holding a 41 percent stake in the bank.

UK Financial Investments (UKFI), which manages the government's stakes in bailed-out banks, has extended a 'trading plan' that allows Morgan Stanley (Xetra: 885836 - news) to sell Lloyds shares beyond its current June 30 deadline until the end of the year.

It has so far raised 3.5 billion pounds through the plan since it was launched last December, bringing the total raised from the sale of Lloyds shares to 10.5 billion pounds.

"WINDOW OF OPPORTUNITY"

Shares (Berlin: DI6.BE - news) have been sold through the plan at an average of more than 80 pence, well above the government's average 73.6 pence buy-in price. Lloyds shares traded 1.3 percent higher at 88.95 pence at 0830 GMT.

"We're determined to get on with the job of returning Lloyds to private ownership," said Finance Minister George Osborne.

"That's why I'm extending the plan for six months so that we can make even more progress in returning money to the taxpayer and paying down the national debt."

UKFI is expected to offer retail investors the chance to participate in an offer of several billion pounds worth of Lloyds shares which, in addition to the shares sold through the trading plan, could enable a full exit in the next year.

Osborne said during last month's election campaign that retail investors would be able to buy between 250 pounds and 10,000 pounds of Lloyds shares. Priority would go to orders of up to 1,000 pounds to enable as many investors as possible to participate.

Industry sources say a possible 'window of opportunity' for the Lloyds sale would be next March, after Lloyds publishes its results for the 2015 financial year.

Financial institutions (NasdaqGS: FISI - news) , such as pension funds and insurers, would be likely to be offered the chance to buy the shares along with retail investors at a discount to the market price.

Retail investors may be offered an additional discount along with other incentives such as bonus shares if they hold on to their stakes for more than a year.

Under its Portuguese Chief Executive Antonio Horta-Osorio Lloyds has returned to profit, enabling it to pay its first dividend for six-and-a-half years earlier this year.

($1 = 0.6552 pounds) (Reporting by Matt Scuffham; Editing by Sinead Cruise and Keith Weir)