Chapter 14 - Introduction to Share Schemes

Question 1

Introduction

Answer 1

There’s 4 types of tax advantaged share schemes:
- SIPs
- Savings Related Share Option Scheme
- CSOP
- EMI
All other schemes or awards are not tax advantaged.

Question 2

General Principles

Answer 2

A grant of an option is to give an employee the right to buy shares at a later date, within a certain time period. When the employee buys them, it’s known as the exercise of the option. Only at exercise do the shares pass to the employee.

Question 3

Reasons for Setting them Up

Answer 3

Remuneration for services
Performance incentives
Retention of staff

Question 4

Gift of Shares to Employees

Answer 4

Gift of shares is not a share option. It’s not a right to buy shares, the employee is being given them outright. For CGT they are assumed to have been acquired at market value.

Question 5

Schemes Without Tax Advantages

Answer 5

Non-tax advantaged schemes are often used for high-paid execs. There is no charge to IT when an option is granted, but there is one when they are exercised.
Value at exercise less cost gives the amount charged to IT as employment income. This is then added back for the base cost when working out CGT