CG56384 - Employment-related securities: securities options: employee

The Capital Gains Tax consequences for the employee will depend on whether a securities option, see CG56321, is

exercised

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. The cost of the securities acquired by the employee on exercise of the option depends on the date of exercise.

If the employee exercises the option after 9 April 2003 the cost of the securities is the total of

  • 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)
  • the amount paid by the employee for the securities on exercise of the option
  • any amount counting as income on exercise of the option under S476 Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003)ITEPA03. See TCGA92/S119A Taxation of Chargeable; CG56328.

If the employee exercised the option before 10 April 2003 the cost of the shares acquired by the employee on exercise is the market value of the shares at the date of exercise.

See CG56321+.

Income Tax relief is given where the employee agrees with the employer to pay part or the whole of any employer's National Insurance Contributions when the option is exercised. This income tax relief will not reduce the amount allowable as an addition to the cost of the securities for capital gains purposes. Amounts that count as employment income of the employee under S476 ITEPA 2003 as a result of exercising the option (or previously ICTA88/S135) will still be allowable in full under s119A TCGA 1992. 

If remittance basis applies to an amount counting as income, see CG25395.

assigned or released

The assignment or release of an option is a disposal of the option for Capital Gains Tax purposes. The release of an option includes its surrender, or cancellation. However, where Chapter 5 Part 7 ITEPA 2003 applies, any consideration for the assignment or release counts as employment income. S37 TCGA 1992 (1) then has the effect that there is no disposal consideration to be brought into the CGT computation.

not exercised and lapses

If the option is not exercised, and simply lapses, there is no allowance to the employee for any amounts paid for the grant of the option, see CG12340.