ERSM110050 - Securities Options

Legislation: overview of liability

Residence

The legislation only applies to employees resident and ordinarily resident in UK at time of grant of option see ERSM20300.

Other employees acquiring securities through options will be chargeable within the provisions of Chapter 3C Part 7 ITEPA (securities acquired for less than market value).

Person acquiring option

Any person may acquire the option where the right or opportunity to acquire is by reason of the employee’s employment. It will be the employee who suffers any charges – see associated person in ERSM20250.

By reason of employment

The rules for defining an employment-related securities option follow those for securities – see ERSM20210, ERSM20220 and ERSM20230.

Former and prospective employments

Where former or prospective employees are granted options, per ITEPA03/S471 (2), there will still be a potential liability, but see ERSM20360 for exceptions.

Grant of option

There are no charges on the grant of an option – see ERSM110110

Chargeable events

There are several potential events when a tax charge might arise ( ERSM110500):

• When a right to acquire securities (securities option) is acquired.
• If it is sold or transferred.
• If it is cancelled or released in exchange for money or other valuable consideration.
• When securities are acquired in connection with the right, usually by exercise, or simply by vesting of a right such as a LTIP.

Residence

There are also special rules:

• for employees who were not resident or ordinarily resident in the UK when the option was granted – see ERSM20300 and ERSM110110.
• for non-domiciled employees who are resident but not ordinarily resident and are working for a foreign employer – see instructions at ERSM70000+

Exchanges of options

A roll-over relief is provided where one option is exchanged for another. See ERSM110800.

Tax-advantaged option schemes

There are different rules relating to tax-advantaged share schemes: approved SAYE schemes (ITEPA03/S519), approved CSOP schemes (ITEPA03/S524) and Enterprise Management Incentives (EMI) (ITEPA03/S530).