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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: Exchange of options: Introduction

Following a company re-organisation it may not be appropriate for employees to hold options over shares in a company which has become a subsidiary; paragraphs 38 and 39 set out the requirements in order to allow for an exchange of options.

Schemes rules may give a right to exercise in the event of a change of control, but it may not be possible for existing options to be exercised because:

  • the options will normally be expressed to be over shares which satisfy paragraphs 18-20 and 22, and no such shares may exist following the takeover (subject to ETASSUM35480 and ETASSUM35490 regarding periods of grace on Takeovers); or
  • the relevant requirements of paragraph 19 ceasing to be satisfied may give HMRC the right to withdraw the tax advantaged status of the scheme.

Companies may consider it more appropriate for employees to hold options over shares in the new ‘parent’ company:

  • the original scheme shares may no longer satisfy the requirements of paragraph 19 (if they are in an unlisted company taken over by another unlisted company), or
  • even if the original scheme shares still satisfy paragraph 19, the existing options may be over shares in an otherwise wholly owned subsidiary for which there may be no ready market.