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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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Company Share Option Plan (CSOP): Taxation: Exercise of share options – Schedule 4 CSOP schemes

The guidance which follows should be read in conjunction with ETASSUM48140.

For options granted under Schedule 4 CSOP schemes the Section 476 charge which may arise on their exercise is removed if certain conditions are satisfied (Section 524). The conditions are set out at ETASSUM48120, however favourable taxation consequences only apply if the option is exercised:

  • in accordance with the provisions of the scheme, and
  • at a time when the scheme is a Schedule 4 CSOP scheme.

Section 476 liability does not arise if a Schedule 4 CSOP scheme option is exercised in accordance with the provisions of the Schedule 4 CSOP scheme:

  • at least 3 years (and no more than 10 years) after grant,  or
  • within 3 years of the date of grant for a “good leaver” reason that is specified in the scheme and exercise occurs within 6 months of cessation (ETASSUM48120), or
  • in accordance with company events detailed in section 524(2E) ITEPA.

Gains realised by the exercise of options following the death of the option holder (paragraph 25 Schedule 4) are exempt from income tax, even if exercise takes place within three years of grant providing exercise occurs within 12 months of death and there is a provision in the scheme rules to allow for exercise in these circumstances (ETASSUM44300).