CG56373 - Employment-related securities: securities options: employer

An employment-related option, is not accounted for as a derivative contract and will not, therefore, be within the derivative contracts legislation in Part 7 CTA09. (The scoping paragraph of IAS 39 (and FRS 26) excludes: “financial instruments, contracts and obligations under share-based payment transactions to which IFRS 2 Share-based Payment applies, except for contracts within the scope of paragraphs 5-7 of this Standard.”)

Liability in respect of chargeable gains may arise in respect of securities options, on

grant of the option

The grant of an option is the disposal of an asset - TCGA92/S144, see CG12300+. Where the option is granted by reason of employment, Section 149A TCGA92 applies to restrict the disposal proceeds of the employer or other person granting the option to the amount actually paid by the employee for the grant of the option. Section 149A applies to options granted after 27 November 1995. See CG56321.

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exercise of the option

If the option is exercised, the grant of the option and the issue or transfer of shares on exercise of the option are treated as forming a single transaction, see CG12313. Any tax charged on the grant needs to be set-off or repaid, see CG12317.

The capital gains consequences of the exercise for the employer or other transferor will depend on whether the option is satisfied

  • by the issue of new shares to the employee, or
  • by the transfer of existing shares or other securities to the employee.

An issue of its own shares by a company is not a disposal of those shares by the company. Consequently, if the option is exercised and satisfied by an issue of new shares, there is then no liability in respect of chargeable gains on any amounts received by the company, either in respect of the grant or on the exercise of the option.

If the option is satisfied by the transfer to the employee of existing shares or securities, there will be a disposal of those assets. For capital gains purposes the consideration is the amount actually paid by the employee for the option (or its market value at the date of grant, if granted before 28 November 1995) together with the consideration given by the employee for the assets on the exercise of the option. See CG56321, CG12397.