Non tax-advantaged share option schemes

Produced by Tolley

The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Non tax-advantaged share option schemes
  • Summary
  • Key considerations
  • Grant of options
  • Terms of the options
  • Exercise of the options
  • Miscellaneous considerations
  • Overseas aspects
  • Tax implications for the employee
  • On grant
  • More...


As with any other discretionary option plan, a non tax-advantaged share option plan involves the granting of a specific number of options to an individual. These options provide that the individual can, at an agreed date or point in time, acquire a given number of shares (the underlying shares) for a fixed price. These share schemes used to be known as ‘unapproved’ share option plans.

Given that there are both no up-front cost to acquiring the options and no requirement for the individual to pay over any monies unless the underlying shares increase in value, there is little risk attached to the receipt of options. As a result, the tax treatment and tax rates applicable will often appear to be very similar to cash bonuses.

Key considerations

Grant of options

The terms of the options need to be set out in a suitable legal document (known as ‘the Rules’). The Rules govern all pertinent matters between the company and employee and, given the tax complexities that can occur in such arrangements, a suitable and up to date precedent should be obtained.

One of the key terms is the price that the individual has to pay to acquire the share (the exercise price). As no income tax charge arises when the non tax-advantaged options are granted, no matter the exercise price, the exercise price can be set at any figure from zero upwards.

Under a non tax-advantaged plan, there is no limit as to how many options are granted. As a result, a non tax-advantaged plan may be used in conjunction with a tax-advantaged plan where the intended award level is in excess of the limits allowed by the tax-advantaged share option plan.

Terms of the options

The Rules of a non tax-advantaged plan can be more widely drafted than for tax-advantaged schemes and as such can better reflect the commercial terms of the issuing company. Whilst there is no prohibition as to who can draft a set of Rules, any adviser

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