Unapproved share options—tax treatment

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

  • Unapproved share options—tax treatment
  • No income tax charge on acquisition of unapproved share option
  • Tax treatment of unapproved share option on exercise or other chargeable event
  • Income tax charge for person other than employee
  • What is a chargeable event?
  • When are securities treated as acquired?
  • Gain on exercise of unapproved share option
  • Cashless exercise
  • Gain on assignment or release of unapproved share option
  • Gain on benefit received in connection with unapproved share option
  • More...

Unapproved share options—tax treatment

Specific income tax rules (in sections 471–487 of the Income Tax (Earnings and Pensions) Act 2003 (Part 7, Chapter 5) (ITEPA 2003)) apply to securities options that are employment-related. These are the rules that typically bring unapproved share options within the charge to income tax.

For further general information on unapproved options, see Practice Note: Unapproved share options. For further information on employment-related securities, see Practice Note: What is an employment-related security?

Alternative rules apply to tax-advantaged share options such as: Enterprise management incentives (EMI) schemes, save as you earn (SAYE) schemes and company share option plans (CSOPs). For further details of the tax treatment of these share options, see Practice Notes:

  1. Enterprise management incentives (EMI)—income tax and NIC treatment of options

  2. EMI—CGT, including business asset disposal relief (previously entrepreneurs' relief) and corporation tax relief

  3. CSOP—income tax and NIC treatment of options

  4. CSOP—CGT treatment and corporation tax treatment

  5. SAYE—income tax and NIC treatment of options, and

  6. SAYE—capital gains tax treatment of options

This Practice Note explains the tax treatment of unapproved share options, which is broadly as follows:

  1. no income tax (or National Insurance contributions (NICs)) charges arise on the grant of an unapproved share option, but

  2. upon exercise of the unapproved share option or other chargeable event:

    1. the relevant employee or director may be subject to income tax (and possibly NICs), and

    2. PAYE

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