CSOP—income tax and NICs treatment of options
CSOP—income tax and NICs treatment of options

The following Share Incentives practice note provides comprehensive and up to date legal information covering:

  • CSOP—income tax and NICs treatment of options
  • Income tax—basic principles
  • CSOP options and income tax
  • Income tax and NICs on the grant of CSOP options
  • Income tax on the exercise of CSOP options
  • Cessation of employment for good leaver reasons prior to the third anniversary of the date of grant
  • Exercise in the event of certain takeover events prior to the third anniversary of the date of grant
  • Exercise other than in the above circumstances
  • Exercise in the event of death
  • Surrender of a CSOP option
  • More...

If implemented and maintained correctly and in accordance with the company share option plan (CSOP) legislation, the income tax and National Insurance contributions (NICs) treatment of qualifying CSOP options can be very favourable. This Practice Note details the income tax and NICs treatment of qualifying CSOP options as detailed in Part 7, Chapter 8 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003).

For an explanation of the capital gains tax and corporation tax treatment of CSOP options, see Practice Note: CCOP—CGT treatment and corporation tax treatment.

Income tax—basic principles

Income tax is a tax on income but not all income is taxable. Individuals are only taxed on ‘taxable income’ above a certain level. There are various reliefs and allowances that can reduce the amount of tax payable. For details of the income tax charge, including to whom it relates and how to calculate the charge, see Practice Note: What is the basis of income tax?

For details of the current tax rates, see Practice Note: Tax and other rates which are relevant to share incentives.

CSOP options and income tax

ITEPA 2003, ss 471–484 sets out the basic statutory rules on the taxation of employment-related securities options. For tax advantaged CSOP options, these are modified by ITEPA 2003, ss 521–526 which set out the income tax exemptions and reliefs for CSOP options, as well as the additional

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