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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

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HM Revenue & Customs
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Schedule 3 SAYE option schemes: Taxation: Tax consequences for the grantor of an option

The grant of an option is the disposal of an asset by the grantor for capital gains tax purposes (Section 144 TCGA 1992). Where options are being granted to employees or directors the market value rules of Section 17(1)(b) TCGA 1992 normally apply. The deemed consideration received by the grantor for the grant of the option is therefore the market value of the option at the date of grant.

For options granted under Schedule 3 SAYE option schemes on or after 16 March 1993 the consideration received by the grantor for CGT purposes is the actual consideration paid by the option-holder for the grant (Section 149A TCGA 1992). As tax advantaged SAYE scheme options are normally granted for nil consideration meaning that in practice that grantors of Schedule 3 SAYE share options are unlikely to be faced with CGT liability on granting the options.

If a share option is exercised, the capital gains tax charge which may have arisen on its grant is removed. Section 144(3) TCGA 1992 considers the grant and exercise of an option to be one transaction. The CGT consequences of that transaction will depend on its end result:

  • if the option exercise is satisfied by the issue of new shares by the company no CGT consequences arise from the transaction - the issue of new shares by a company is not a CGT chargeable occasion;
  • if the option exercise is satisfied by the transfer of existing shares (e.g. by the trustees of an employee benefit trust) the transfer of the shares to the option-holder will be a disposal by the trustees for CGT purposes.

If an option is never exercised (it may be assigned, released or simply lapse) any capital gains tax charge on the grantor in respect of the grant of the option (see above) will remain.

Further guidance on the CGT consequences for grantors of options under employee share schemes is at CG56400 onwards.