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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

HM Revenue & Customs
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Company Share Option Plan (CSOP): Taxation: Income tax consequences for participants

Chapter 8 of Part 7 of Income Tax (Earnings and Pensions) Act 2003 provides for exemptions to income tax for share options granted under Schedule 4 CSOP schemes and for amounts to count as employment income in certain circumstances in connection with such options.        

Section 524 ITEPA provides favourable tax treatment for options granted and exercised under Schedule 4 CSOP schemes in certain circumstances.

Section 524 sets out the conditions to obtain income tax relief when employees and directors acquire shares by virtue of exercising Schedule 4 CSOP options:

  • The individual exercises the option in accordance with the provisions of the CSOP scheme at a time when the scheme remains a Schedule 4 CSOP scheme and either Condition A or B or the requirements of section 524(2E) are met:


  • Condition A is that option is exercised on after the third anniversary of the date of grant and not later than the tenth anniversary of that date,
  • Condition B is that option is exercised before the third anniversary of the date of grant and is so exercised by virtue of a ‘good leaver’ provision included in the scheme (see ETASSUM44310), or
  • the option is exercised before the third anniversary of grant by virtue of a provision included under paragraph 25A (Exercise of options: company events) (see ETASSUM44440) and the exercise meets the requirements of section 524(2E); and


  • The avoidance of tax or national insurance contributions is not the main purpose (or one of the main purposes) of any arrangement under which the option was granted or exercised.