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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

Schedule 3 SAYE option schemes: Shares to which schemes can apply: Shares to be used: Scheme shares subject to restrictions

In relation to Schedule 3 SAYE share options granted on or after 17 July 2013, the shares to be acquired on exercise can be subject to restrictions – see ETASSUM39060.

A restriction attaches to a share if the share was subject to the restriction on issue by virtue of the company’s Articles of Association or by authority of a special resolution of the company (or a later amendment to the company’s Articles). But scheme shares may be subject to restrictions imposed other than by the Articles of Association – see section 423(2) to (4) ITEPA.

Restrictions on scheme shares can take the form of:

  • direct restrictions on the scheme shares, or
  • additional rights given to other shares of the same class.

Restrictions attaching to shares are most commonly to be found in the section of the Articles governing share transfers but may also be found elsewhere in e.g. the share scheme rules or shareholder agreements.

It must be stated at the time of grant whether or not the shares under option are subject to any restriction and if they are, details of the restriction must be stated (paragraph 28(5)). This means that the restrictions must be identified for participants and it is not sufficient for the company to refer generally to its articles of association or a shareholder agreement, for example.

Restrictions notified in accordance with HMRC’s ESSUM/ETASSUM guidance in force at the time of particular option grants will  be considered to have been notified to optionholders in a manner acceptable to HMRC.

In the case that restrictions are omitted from grant documentation, HMRC will take into consideration for compliance purposes any evidence that the restrictions have been otherwise brought to a Participant’s attention in a meaningful way at or near the date of option grant.

Failure to notify a trivial restriction will not be a compliance issue.

If new or revised restrictions are applied to the shares after options have been granted, details of those restrictions must be provided to option holders as soon as practicable. Care should be given to ensure that any such alteration to the restrictions does not constitute the creation of a new right, which would adversely impact the tax advantaged status of the options.

Restricted shares are to be valued as if they were unrestricted (Paragraph 28(6)).