SAYE—income tax and NIC treatment of options
Produced in partnership with Ian Murphie of Share Plan Partners Ltd
SAYE—income tax and NIC treatment of options

The following Share Incentives practice note produced in partnership with Ian Murphie of Share Plan Partners Ltd provides comprehensive and up to date legal information covering:

  • SAYE—income tax and NIC treatment of options
  • SAYE option grant
  • SAYE option exercise—tax exempt exercise of option
  • Tax exempt early exercise on leaving scheme-related employment
  • Tax exempt early exercise on certain corporate events
  • Loss of tax exemption on option exercise
  • NICs treatment

SAYE—income tax and NIC treatment of options

Where an employee is granted a share option under a Schedule 3 SAYE option scheme, the employee benefits from the following tax advantages provided that he exercises the option in one of the circumstances prescribed by the legislation (as detailed below):

  1. no income tax on option grant

  2. no income tax on option exercise

  3. no income tax on any discount in the exercise price (SAYE options can be granted with a discount of up to 20% to the market value of the shares at the award date)

  4. no income tax on any savings bonus paid on the bonus date or, if the savings contract is terminated early, on any interest payable by the savings carrier under the savings contract

  5. no National Insurance contributions (NICs), and

  6. CGT on disposal of the shares on gains in excess of the individual’s annual exempt allowance

The exemption from income tax and NICs extends to the exercise of options granted under a Schedule 3 SAYE option scheme by a deceased’s personal representatives.

SAYE share option schemes have proven extremely popular historically as there is a perceived 'no risk' to participants. If the share price at the end of the savings period has dropped below the exercise price then the employee can elect to have their savings returned, together with tax-free bonus where payable. Gains on disposal

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