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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

HM Revenue & Customs
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Schedule 3 SAYE option schemes: Requirements relating to share options – The exercise price: Flotations

A company which is undergoing a public flotation will often wish to grant options with a subscription price equal to the price at which the shares are being offered to the public. Unless the options are to be granted unconditionally no later than the day before the shares are admitted to the official list of the Stock Exchange, Revenue & Customs is not normally prepared to agree to any earlier date than the date of grant for determining the market value under paragraph 282(2). The consequence is that the acquisition price of options granted on the flotation date must be based on the market value of the shares on (and not before) the date of grant. That is the listed price determined in accordance with Section 272(3) TCGA 1992.

Scheme rules which define the option price as the offer price will meet the requirements of Schedule 3 only if the following conditions are satisfied and there are no unusual features which would make this inappropriate:

  • the flotation is by way of an offer for sale to the public at a fixed price (see below),
  • the options are granted within 30 days following the opening of the public offer,
  • the potential scheme participants have completed all the necessary formalities for participation in the scheme before the closing date for the public offer, and
  • the options are unconditionally granted no later than the day before the shares are admitted to the Official List of the Stock Exchange (see below).

It is possible for a placing to constitute an offer for sale to the public at a fixed price. But whether a particular placing does so, will depend on the facts of each case.  The main test is whether the placing is being used as a mechanism to get shares into the hands of the general public, rather than confining them to a select group. Where a significant proportion of the shares (at least 50%) are being brought to the market are offered to the public, it may be accepted that this condition is satisfied.

In cases which do not involve offers to the public, the scheme rules must define the option acquisition price of all options by reference to the market value of the shares, and require the market value used in pre-flotation grants to be agreed with HMRC Shares & Assets Valuation.

The requirement that potential scheme participants must have completed all necessary formalities for participation in the scheme in question before the closing date of the offer for sale means that in SAYE schemes they must have applied to participate and submitted application forms to enter into SAYE contracts.

Schedule 3 SAYE option schemes can provide for options granted before listing to be exercised after flotation and to lapse if listing does not occur within a specified period (not exceeding four weeks) after the date of grant. The specified period should be sufficiently short so that the practical effect is that, if listing does not occur within it, the option will lapse before the first payment under the related savings contract is due.