As with any other discretionary option plan, an unapproved share option plan involves the granting of a specific number of options to an individual. These options will provide that the individual can, at an agreed date or point in time, acquire a given number of shares (the underlying shares) for a fixed price.
Do you pay income tax on share options?
You will not pay Income Tax or National Insurance contributions on the difference between what you pay for the shares and what they’re actually worth. You may have to pay Capital Gains Tax if you sell the shares.
How are unapproved share options taxed?
There is no income tax or National Insurance charge on the grant of an unapproved option. Income tax is, however, chargeable on the gain realised by the individual on the exercise of the option. Capital gains tax (CGT) applies to any gains between exercise and sale.
Do I pay capital gains when I exercise options?
You’ll pay capital gains tax on any increase between the stock price when you sell and the stock price when you exercised. In this example, you’d pay capital gains tax on $5 per share (the $10 sale price minus $5, which was the price of the stock when you exercised).
How does an unapproved share option plan work?
Background With an unapproved share option plan (USOP), employees are given options to acquire shares at a future date at any price specified by the company, usually the market value of the shares on the date the option is granted, for non-Executive employees. Where options are part of a Long Term Incentive Plan…
What happens to your shares when you exercise an option?
If you exercise your EMI option the capital gains cost of your shares is what you pay for them together with the amount charged to Income Tax, if any, on the exercise of your option. If you exercise an unapproved share option, the capital gains cost of your shares is the total of: the price you pay for the shares when you exercise the option
Do you need HMRC approval for Share Option scheme?
Such schemes do not require HM Revenue & Customs (HMRC) approval, and the ability to exercise the options may be governed by performance targets. There is no requirement for all employees to be granted options and the scheme can be set up on a selective basis for certain individuals only.
How are share options set in long term incentive plan?
Where options are part of a Long Term Incentive Plan (LTIP) the price is usually set at nil. The employee is given a right to exercise their option, but if the share price at the point that exercise can be made is lower than the option price (‘underwater’) then the employee may choose not to do so.
