BIM44001 - Specific deductions - employee share schemes: glossary

All Employee Share Ownership Plan (AESOP)

Tax-advantaged all-employee share award scheme approved by the Employee Share Schemes Unit, Somerset House, under ITEPA03/SCH2 (formerly FA00/SCH8), now known as a Share Incentive Plan (SIP)

Approved profit sharing scheme (APS)

Tax-advantaged all-employee share award scheme approved by the Employee Share Schemes Unit under ICTA88/SCH9 until April 2001

Approved scheme

Share award or share option scheme approved by the Employee Share Schemes Unit, which gives favourable tax and NICs advantages to employees and employers

Case law trust

Employee share ownership trust or general purpose EBT which relies on tax case law rather than specific legislation as authority for allowing tax deductions for employers’ contributions

Company Share Option Plan (CSOP)

Tax-advantaged discretionary share option scheme approved by the Employee Share Schemes Unit under ITEPA03/SCH4 (formerly ICTA88/SCH9)

Conditional share award

An award of a number of shares of which the employee will become the owner at a future date if specified conditions are met

Discounted option

A share option which gives the option-holder the right to buy shares at an exercise price lower than the market value of the shares when the option was granted

Employee Benefit Trust (EBT)

A trust set up by an employing company or its group parent company to provide employees with benefits which may take a variety of different forms

Employee share ownership trust (ESOP trust or ESOT)

A trust set up by an employing company or its group parent company to provide employees with benefits in the form of shares or options over shares in that company

Enterprise Management Incentive (EMI) option

Option over shares in an EMI company which qualifies for tax advantages under ITEPA03/SCH5 (formerly FA00/SCH14)

Exercise of option

When the option-holder uses the rights under the option to buy shares at the option exercise price

Exercise price

Price at which the holder of a share option has the right to buy shares

Forfeitable shares

Shares given to employees subject to a risk that they may have to be forfeited if specified conditions are not met during a forfeiture period

Forfeiture period

Period during which employees holding forfeitable shares are at risk of having to forfeit them if specified conditions are not met during the period

Grant of option

Giving the option-holder a right to acquire shares in the future - options must be granted under seal or deed or for consideration (usually a nominal amount such as £1)

Group scheme

An employee share scheme set up by the parent company of a group under which share-related benefits are provided to employees of nominated companies in the group

Long Term Incentive Plan (LTIP)

Term often used for a conditional share award scheme or a scheme providing employees with forfeitable shares

Market value option

A share option which gives the option-holder the right to buy shares at an exercise price equal to the market value of the shares when the option was granted

Performance conditions

Conditions or targets which must be satisfied during a specified performance period before employees can acquire shares under conditional share awards or by exercising share options

Performance period

Specified period over which performance conditions or targets, to which share awards or share options may be subject, must be met

Phantom share option

A right to receive a payment in cash (not shares) based on the increase in value of a set number of shares over a set period

Profit sharing scheme

See Approved profit sharing scheme (APS)

Qualifying employee share ownership trust (QUEST)

A trust that meets the requirements of FA89/SCH5. Favourable tax treatment given for employers’ contributions to QUESTs in accounting periods starting before 1/1/2003

Replacement option

A new share option granted in exchange for the surrender of an old option, usually when the company whose shares were the subject of the old option is taken over (see Rollover of options)

Restricted shares

Shares acquired by an employee which are subject to restrictions (such as restrictions on voting or dividend rights, or the employee’s ability to sell the shares). Includes forfeitable shares

Rollover of options

When an old option is exchanged for a new option, usually over shares in a new parent company following a takeover (see Replacement option)

Savings-related or SAYE share option scheme

Tax-advantaged all-employee share option scheme approved by the Employee Share Schemes Unit under ITEPA03/SCH3 (formerly ICTA88/SCH9)

Share award

An award of a number of shares of which the employee will become the owner at a future date, usually if certain conditions are met (see Conditional share awards)

Share Incentive Plan (SIP)

Tax-advantaged share award scheme approved by Employee Share Schemes Unit under ITEPA03/SCH2 (formerly FA00/SCH8), originally known as an All Employee Share Ownership Plan (AESOP)

Share option

A right to acquire a set number of shares at a set price during a set period

Single company scheme

An employee share scheme set up by an employing company under which benefits in the form of shares or options over shares in the employing company are provided to its employees

Unapproved scheme

A share award or share option scheme which does not qualify for favourable tax and NICs advantages given to approved schemes

Underwater option

A share option whose exercise price is higher than the current market value of the shares

Vesting

When conditional share awards become unconditional