Frequently asked questions for CSOP

Employee FAQs

Contents

Q. I am a director of a company. Can I be granted a CSOP option?

A. Yes, providing you are a full-time director. This means that you work in a week more than 25 hours (excluding meal breaks) with the company granting the options or with a participating company.

Q. What is a participating company?

A. This is a subsidiary company of which the company establishing the CSOP has control and which can take part in the plan.

Q. What do you mean by control?

A. Control has the meaning in Section 840 ICTA 1988 and will normally include companies in which the grantor company owns more than 50% of the shares.

Q. Can any employee be granted a CSOP option?

A. Under a CSOP the company can select the employees and directors it wishes to grant options to. Qualifying employees are any full-time or part-time employees who are not directors. There is no restriction on the number of hours worked per week.

Q. How many shares can I be granted under a CSOP?

A. There is no restriction on the number of shares that can be held, however there is a limit to the value of the shares that can be held. At any one time you can hold options up to £30,000 under a particular CSOP. This value is based on the market value of the shares at the date when the rights were obtained (normally at grant) and is the aggregate market value for all grants on or after 17 July 1995 under all approved CSOP's granted by that company or any associated company.

Example

Options have been granted giving the following rights:

Date rights obtained

Market Value

Number of shares

Aggregate Market Value

1/9/95

£2

5,000

£10,000

1/4/98

£4

5,000

£20,000

 

 

 

£30,000

No further options can be granted until some of these rights have been exercised (or have lapsed). This would still be the case if the current market value of the shares concerned fell to say £1.50.

Q. What is an associated company?

A. A company is associated to another company if at that time or at any time in the previous 12 months either one of the two has control of the other, or both are under the control of the same person.

Q. Can I have CSOP options in excess of £30,000 from more than one company?

A. Yes, providing that the companies are not associated companies or part of a group.

Q. What is the Market Value of a share?

A The Market Value, is the price which the shares might reasonably be expected to fetch on sale in the open market. If the shares are fully listed on the London or New York Stock Exchanges then generally the MV will be the mid market value on the date the shares were granted.

If the shares are not fully listed then the MV has to be agreed with HMRC Shares and Assets Valuation, before the grant of the options.

Q. How is each exercise treated for tax-relief?

A. These will be free of income tax if all those options fulfil the following criteria:

  • 3 years, and not more than 10 years, have passed between the dates of grant and exercise of the option or
  • 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 for certain specified reasons.
  • The scheme has HMRC approval at the time the option is exercised.

Please see our further guidance on Tax/NIC

Q. Are there any other exceptions to the 3 year holding period to qualify for tax relief?

A. Yes. If the option holder is deceased and the personal representatives exercise the option within 10 years of the date of grant then there is no tax/NIC charge providing that the options are exercised within 12 months of the date of death.

Q. I want to exercise my options under my spouses name. Can I do this?

A No. An option is not transferable. When you have acquired the shares following exercise you are normally free to transfer them to some one else but there may be a charge to capital gains tax on transfer.

Q. I have been given an Incentive Stock Option by the US parent company of my employer. This enjoys 'approved' status in the USA - will I get similar tax exemption in the UK if I am resident here when I exercise my option?

A. No. If the option is not granted under a plan which has been approved by the HMRC, any gain which you make on exercise will be taxed as an unapproved option.

Q. Can a CSOP include provision for the payment of cash instead of shares?

A. No. Cash received in place of shares is chargeable to income tax under PAYE.

Q. My company has more than one class of share. Are there any restrictions on which class can be used in a CSOP?

A Yes. Only shares which meet the requirements of Paragraphs 16-20 Schedule 4 Income Tax (Earnings and Pensions) Act 2003 can be used. Please see our further guidance on articles of association.

Q. If an option holder dies (and the options are exercised within 10 years of the grant) is there a tax/NIC charge on the personal representatives upon the exercise?

A. No, providing that the options are exercised within 12 months of the date of death.

Q. What happens if the company grants options over the £30,000 limit?

A. If an option is granted which takes the value of all options above of £30,000 then the whole of that option is treated as being an unapproved option and the normal PAYE /NIC rules will apply.