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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 4 Company Share Option Plan (CSOP): Requirements relating to options: Non-UK company reorganisation arrangement

From 6 April 2014, companies can choose to allow options to be exercised within six months of a non-UK company reorganisation (see ETASSUM45170).

A non-UK company reorganisation arrangement exercise provision that is conditional upon a change of Control occurring will be compliant with paragraph 25A where exercise could only be triggered(i)  in a situation that is covered by paragraph 25A (6A) and (ii) under circumstances that include a transaction under paragraph 35ZA .

Schemes approved by HMRC prior to 6 April 2014 may contain existing provisions similar to those concerning a non-UK company reorganisation arrangement (section 524(2E) and paragraphs 25A(2) and (6A) of Schedule 4). For example, option exercise may be stated to be triggered by “overseas legislation which HMRC accepts is equivalent to UK legislation”, or similar.Schemes previously “approved “which include “equivalent overseas legislation” wording are deemed to meet the requirements of paragraph 25A (6A)and 35ZA and can continue to operate on their existing terms. The latter includes (i) granting new options (ii) tax-relieved exercise on the occurrence of a relevant event (iii) rollover and the grant of new options and (iv) extension of the life of the plan.

Where the option exercise provision for non-UK company reorganisation arrangements authorised by FA 2014 is substituted for one of these existing provisions, HMRC will not consider this to be the creation of a new right. In this circumstance, options can have the benefit of the non-UK reorganisation exercise right whether granted before or after the date of alteration.

Where however any existing Schedule 4 CSOP schemes (whether approved prior to 6 April 2014 or not) which does not contain similar existing provisions is altered to include non-UK company reorganisation arrangements as a new option exercise provision, this alteration will constitute the grant of a new right, which will result in a loss of tax advantages.  Consequently, only options granted after the date of the alteration will have the benefit of this new exercise right.

Exemption from tax on exercise of option

Tax exemption under section 524(2E) is available only if the scheme makes provision for exercise within six months of the date on which a non-UK reorganisation applicable to or affecting:

  • all the ordinary share capital of the company or all the shares of the same class as the shares to which the option relates, or
  • all the shares, or all the shares of that same class, which are held by a class of shareholders identified otherwise than by reference to their employments or directorships or their participation in a Schedule 4 CSOP scheme,

becomes binding on the shareholders covered by it.

When the arrangement becomes “binding” may vary according to the jurisdiction concerned.