ERSM110200 - Securities Options

Charge on grant of long options – old rules

If an option to acquire shares (definition see below) is

• granted before 1 September 2003,
• granted in respect of a Case 1 employment, and
• capable of being exercised more than ten years after the date it was granted

a charge to tax under Schedule E may arise on the grant of the option under the general provision of ICTA88/S19 (1) as in Abbott v Philbin (39TC82) – see ERSM110100.

Such an option is called a 'long option'. For years up to 1997/98 the time span for a long option was seven years. It was increased to 10 years with effect from 6 April 1998.

The measure of the charge under ICTA88/S19 (1) is the value of the option on the date it is granted, less anything paid for the option. The value of an option is fixed by ICTA88/S135 (5)(b) as not less than the market value of the shares subject to the option on the date of grant less the price to be paid for the shares on exercise.

No self-assessment need be made on the grant of an option if the option is granted at a price equal to the market value of the shares on the date of grant.

Definition of “shares”

Shares includes stock (interest of any member in a company) and other securities as defined in ICTA88/S254 (1), but does not include Government gilts.

Charge on not ordinarily resident employees (non-Case 1 Schedule E)

ICTA88/S135 (5)(b) does not apply to non-Case 1 employees; and they continue to be outside the provisions of Chapter 5 Part 7 ITEPA 2003. Such R/NOR employees should continue to pay a money’s worth charge on options granted at a discount to the then market value – see ERSM20500. Any subsequent acquisition of securities in pursuance of the option will be chargeable under the provisions of Chapter 3C Part 7 ITEPA 2003.