PT41 CSOPs

Question 1

Key benefits of a CSOP

Answer 1

A Company Share Option Plan (CSOP) is a flexible way of rewarding specified employees and involves granting options over employer company shares.

It does not have to be available to all employees.

Employees with more than 30% of the shares in a close company cannot participate.

Question 2

Main CSOP conditions

Answer 2

The main conditions are as follows:
* No discount can be given, ie the option price cannot be less than the market value at the date of grant.
* The maximum value of shares (valued at the date of grant) over which options can be held is £30,000.

Question 3

What are the income tax & NIC implications of the exercise of company share options under a CSOP plan if the exercise is made between 3 - 10 years?

Answer 3

There are no income tax or NICs implications on the exercise of company share options if the exercise is made between three years and ten years from the date of the grant

The employee will only have a capital gain equal to the difference between cost and sales proceeds.

Question 4

What are the income tax & NIC implications of the exercise of company share options under a CSOP plan if the exercise is made before 3 years or after 10 years?

Answer 4

if the exercise of the company share options is made outside of three to ten years from the date of grant, there is a charge to employment income at the date of exercise, as follows:

Market value of shares at date of exercise X
Less: Option price (X)
Employment income chargeable to income tax X

NICs will be charged if the shares are readily convertible assets.

The amount charged to income tax will be deducted when arriving at the gain chargeable to capital gains tax:

Sales proceeds X
Less: Cost (X)
Less: Amount charged to income tax (X)
Capital gain X