Income Tax (Earnings and Pensions) Act 2003

Part 2 U.K. General requirements

General requirements: introduction U.K.

3 U.K. A share option is not a qualifying option unless the requirements of this Part of this Schedule as to the following are met at the appropriate time—

• the purpose for which the option is granted (see paragraph 4),

• the maximum entitlement of an employee (see paragraphs 5 and 6),

• the maximum value of the relevant company’s shares in respect of which unexercised options can exist (see paragraph 7).

Purpose of granting the option U.K.

4 U.K. To be a qualifying option a share option must be granted for commercial reasons in order to recruit or retain an employee in a company, and not as part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax.

Maximum entitlement of employee: financial limit on unexercised options U.K.

5 (1) An employee may not hold unexercised qualifying options which— U.K.

(a) are in respect of shares with a total value of more than [F1 £250,000] , and

(b) were granted by reason of the employee’s employment—

(i) with one company, or

(ii) with two or more companies which are members of the same group of companies.

(2) A share option cannot be a qualifying option if the limit in sub-paragraph (1) is already exceeded at the time when it is granted.

(3) If the grant of a share option causes that limit to be exceeded, the option cannot be a qualifying option so far as it relates to the excess.

(4) Where, at the time when a share option is granted to an employee (“E”), E holds unexercised CSOP options granted by reason of E’s employment—

(a) with the employer company, or

(b) if it is a member of a group of companies, with any member of that group,

those options are to be treated for the purposes of this paragraph as if they were unexercised qualifying options.

(5) A “CSOP option” is an option to acquire shares under a scheme [F2 which is a Schedule 4 CSOP scheme (see Schedule 4)].

(6) For the purposes of this paragraph—

(a) “the value” of shares in respect of which a particular share option is or has been granted means the market value, at the time when the option is or was granted, of issued shares of the same class as those that may be acquired by exercise of the option; and

(b) a share option is to be treated as granted in respect of the maximum number of shares that may be acquired under it.

[F3 (7) For the purposes of this paragraph the market value of restricted shares is to be determined as if they were not.

(8) Shares are “restricted shares” if there is any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) of section 423 (restricted securities) would apply if the references in those subsections to the employment-related securities were to the shares.]

Textual Amendments

F1 Word in Sch. 5 para. 5(1)(a) substituted (16.6.2012) by The Income Tax (Limits for Enterprise Management Incentives) Order 2012 (S.I. 2012/1360), arts. 1, 2(2)(a)

F2 Words in Sch. 5 para. 5(5) substituted (6.4.2014) by Finance Act 2014 (c. 26), Sch. 8 paras. 203, 204 (with Sch. 8 paras. 205-215)

F3 Sch. 5 para. 5(7)(8) substituted (1.9.2003) by Finance Act 2003 (c. 14), Sch. 22 para. 45(2)(4); S.I. 2003/1997, art. 2

Maximum entitlement of employee: further limit of 3 years U.K.

6 (1) Sub-paragraph (2) applies if an employee (“E”) has already been granted, by reason of E’s employment with one company, qualifying options in respect of shares with a total value of [F4 £250,000] . U.K.

(2) Any further option granted by reason of E’s employment—

(a) with that company, or

(b) if it is a member of a group of companies, with any member of that group,

within the 3-year restriction period cannot be a qualifying option.

(3) Sub-paragraph (4) applies if an employee (“E”) has already been granted, by reason of E’s employment with two or more companies which are members of the same group of companies, qualifying options in respect of shares with a total value of [F5 £250,000] .

(4) Any further option granted, by reason of E’s employment with any member of that group, within the 3-year restriction period cannot be a qualifying option.

(5) Sub-paragraph (2) or (4) applies whether or not the qualifying options already granted have been exercised or released.

(6) In those sub-paragraphs “the 3-year restriction period” means the period of three years after the date of the grant of the last qualifying option.

(7) Paragraph 5(6) to (8) (determination of value of shares) apply for the purposes of this paragraph as they apply for the purposes of paragraph 5.

Textual Amendments

F4 Word in Sch. 5 para. 6(1) substituted (16.6.2012) by The Income Tax (Limits for Enterprise Management Incentives) Order 2012 (S.I. 2012/1360), arts. 1, 2(2)(b)

F5 Word in Sch. 5 para. 6(3) substituted (16.6.2012) by The Income Tax (Limits for Enterprise Management Incentives) Order 2012 (S.I. 2012/1360), arts. 1, 2(2)(b)

Maximum value of options in respect of relevant company’s shares U.K.

7 (1) The total value of shares in the relevant company in respect of which unexercised qualifying options exist must not exceed £3 million. U.K.

(2) A share option cannot be a qualifying option if the limit in sub-paragraph (1) is already exceeded at the time when it is granted.

(3) If the grant of a share option causes that limit to be exceeded, the option cannot be a qualifying option so far as it relates to the excess.

(4) If the grant of two or more options at the same time causes that limit to be exceeded, sub-paragraph (5) applies.

(5) For the purpose of determining which part of each option relates to the excess, the amount of the excess is to be divided pro rata among the options according to the value of the shares in respect of which each option was granted.

(6) Paragraph 5(6) to (8) (determination of value of shares) apply for the purposes of this paragraph as they apply for the purposes of paragraph 5.