(1)This Chapter provides—
(a)for the approval of CSOP schemes by the Inland Revenue,
(b)for exemptions from income tax in connection with share options granted under those schemes, and
(c)for amounts to count as employment income in certain circumstances in connection with such options.
(2)Schedule 4 contains the requirements that have to be met for a CSOP scheme to be approved, together with the approval procedure.
(3)The provisions of—
(a)this and the following sections of this Chapter,
(b)Schedule 4, and
(c)Part 3 of Schedule 7D to TCGA 1992 (approved CSOP schemes: amount of consideration on exercise of option),
together constitute “the CSOP code”.
(4)In the CSOP code—
“approved” means approved by the Inland Revenue under Schedule 4 (see paragraph 1 of the Schedule);
“CSOP scheme” means a scheme (commonly referred to as a company share option plan) which—
is established by a company,
provides for share options to be granted to employees and directors, and
is not an SAYE option scheme (within the meaning of the SAYE code: see section 516(4));
“share option” means a right to acquire shares in a company;
“shares” includes stock.
(5)Other expressions used in the CSOP code and contained in the index at the end of Schedule 4 have the meaning indicated by the index.
(1)This Chapter applies to a share option granted to an individual—
(a)in accordance with the provisions of an approved CSOP scheme, and
(b)by reason of the individual’s office or employment as a director or employee of a company.
(2)The individual may be a director or employee of the company whose shares are the subject of the share option, or of some other company.
(1)No liability to income tax arises in respect of the receipt of the share option.
(2)But this is subject to section 526 (charge where option granted at a discount).
(1)No liability to income tax arises in respect of the exercise of the share option if—
(a)the individual exercises it in accordance with the provisions of the CSOP scheme at a time when the scheme is approved, and
(b)the condition in subsection (2) is met.
(2)The condition is that—
(a)the option (“the current option”) is exercised—
(i)on or after the third anniversary of the date on which it was granted, but
(ii)not later than the tenth anniversary of that date, and
(b)the individual has not made an exempt exercise of another option within the period of 3 years ending with the date on which the current option is exercised.
(3)For the purposes of subsection (2)—
(a)an individual has made an exempt exercise of another option if the individual has exercised a share option granted under the scheme, or under any other approved CSOP scheme, in circumstances in which subsection (1) applied to its exercise, and
(b)an option exercised on the same day as the current option is to be disregarded.
(4)This section does not affect the operation of section 477(4) (no charge on exercise of option by personal representatives etc.).
(5)Paragraph 25 of Schedule 4 provides for the exercise of an option where the holder has died.
(1)This section applies if—
(a)the individual exercises the share option in accordance with the provisions of the CSOP scheme at a time when the scheme is approved, and
(b)the condition set out in section 524(2) is met.
(2)No liability to income tax arises by virtue of—
section 449 (charge where restrictions or rights varied after acquisition), or
section 453 (charge on increase in value of shares of dependent subsidiaries),
in respect of shares acquired by the exercise of the option.
(1)This section applies if, at the time when the share option is granted to the individual, the aggregate of—
(a)the amount or value of any consideration given by the individual for the grant of the option, and
(b)the amount payable by the individual, on exercising the option, in order to acquire the maximum number of shares that may be acquired under it,
is less than the market value of the same quantity of issued shares of the same class.
(2)The amount of the difference counts as employment income of the individual for the relevant tax year.
(3)The “relevant tax year” is the tax year in which the option is granted to the individual.
(4)The following provisions, namely—
(a)section 194 (amount of notional loan in respect of acquisition of shares for less than market value), and
(b)sections 479 and 480 (amount of gain realised by exercising, assigning or releasing option),
provide for deductions to be made to take account of amounts that count as employment income under this section.