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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

HM Revenue & Customs
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Schedule 4 Company Share Option Plan (CSOP): Eligibility of individuals to participate: The employment requirement: Death of an option holder

Although Schedule 4 CSOP options must not be transferable, a permissible exception is that the scheme rules may allow the option to be exercised if the option-holder has died. Exercise by either the personal representatives or by the beneficiaries of the estate is acceptable.

A provision for option exercise triggered by the death of the option-holder is optional to include in plans. Where it is included, however:

  • The length of the option exercise period is a fixed twelve month period from the date of death regardless of any other option exercise provision in the plan (that includes the ‘no exercise more than 10 years after grant’ provision) (paragraph 25).
  • The one exception to this is where a plan contains an exercise provision on a company winding-up when a 12 month option exercise period may be impossible to provide.
  • The option does not have to be exercised in full; the amount can be pro-rated.

When the shares are subsequently sold by the personal representatives or beneficiaries there will be a charge to capital gains tax based on the sale proceeds less the market value of the option at the date of death, less the (option) price paid by the personal representatives to acquire the shares on option exercise. There is no charge to income tax upon the exercise of the option by the personal representative, even if this occurs within 3 years of the date of grant. Calculation of CG on death of option holder