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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

Schedule 4 Company Share Option Plan (CSOP): Requirements relating to options: Exercise of options for company events

Prior to 17 July 2013 (when FA 2013 became law) there were no statutory exercise provisions for corporate events, because these are discretionary schemes, but companies could include exercise provisions for any corporate event they wanted to, subject to the scheme’s overall compliance with the CSOP code.

From 17 July 2013, companies can choose to include in their schemes a provision for exercise which (i) allows share options to be exercised and (ii) allows for the possibility of tax-relieved exercise where specific conditions apply:

  • a person obtains control of the company by general offer – see ETASSUM44430,
  • the court sanctions under section 899 Companies Act 2006 a compromise or arrangement resulting in a change of control of the company – see ETASSUM44450, or
  • at any time when a person who is bound or entitled to acquire shares in the company under sections 979 to 982, 983 or 985 Companies Act 2006, obtains control of the company – see ETASSUM44460.
  • From 6 April 2014, companies can also choose to allow options to be exercised within six months after a non-UK company reorganisation arrangement (see ETASSUM44430). 

Several conditions apply if the exercise is to qualify for exemption from tax under section 524(2E):

  • the option must be exercised before the third anniversary of the date of grant at a time when the scheme is approved (options exercised on or after the third anniversary will in any event qualify under section 524(2)(a)),
  • the option holder must receive cash (and no other asset) in exchange for the shares acquired on exercise as a result of the general offer, compromise or arrangement or takeover offer as appropriate,
  • the option must have been granted before the offer, compromise etc, non-UK company reorganisation or takeover offer was under consideration or made,
  • there must not have been an opportunity for the option holder to exchange his or her options in accordance with paragraph 26, and
  • the avoidance of tax or NICs must not have been one of the main purposes for the grant or exercise of the option (paragraph 25A(2E)).