CG56387 - Employment-related securities: securities options: replacement option
S237A Taxation of Chargeable Gains Act 1992 (TCGA 1992)
A replacement option may be granted over the shares in the same or a different company. This may happen for a number of reasons, one of which is that the company that granted the option is taken over by another company. If so, the old option may be released in consideration of the grant of a replacement option.
Chapter 5 Part 7 Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) does not impose an Income Tax charge where an employee releases an employment-related option and the consideration for the release is a replacement option.
No chargeable gain accrues to an employee or employer on the release of his or her old share option as S237A TCGA 1992 provides that the acquisition of the new option is not to be regarded as consideration for the release of the old.
Furthermore, the acquisition cost of the new option will be the same as that of the released option together with any additional consideration paid for the new option.
If the grantor receives additional consideration for the grant of the replacement option a gain will accrue on this disposal.