Company Share Option Plans

Features of Company Share Option Plans

  • These are discretionary schemes - in other words the company can select the employees and directors it wishes to reward.
  • The company grants them an option to purchase the company's shares in say 3 years time at today's price.
  • For example a company may grant an option over 1000 shares at £2.50 per share. In 3 years time the value of each share may be £6. The participant exercises the option by paying the company £2500 and is given the shares which are worth £6000.

Some guidelines

  • The company can operate a scheme only if it has been approved by the HMRC.
  • The role of the Employee Share and Securuties Unit is to ensure that the rules of schemes which are adopted satisfy the relevant legislation.
  • Some of the more important points in the legislation are:
    • No participant can be granted approved options with a value of more than £30,000 calculated at the date of grant.
    • Participation in the scheme is not open to people who own more than 25% of the company.

Tax Relief

  • Income tax is not chargeable when an option is granted.
  • Income tax is not normally chargeable on the increase in value of the shares between grant and exercise if the following conditions are satisfied:
    • The option is exercised in accordance with the scheme which is still approved at the time.
    • The option is exercised at least 3 and no more than 10 years after the date of grant.
    • If the option is exercised within 3 years of the date of grant, this is done under a provision of the scheme which allows exercise on cessation due to injury, disability, redundancy or retirement after reaching an age specified in the scheme and the exercise is within 6 months of this cessation.
  • The cost for capital gains tax purposes is normally the price paid for the shares.

How do I go about setting up a CSOP?