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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: Post-acquisition income tax consequences - Schedule 4 CSOP schemes

Employees acquiring shares by exercise of a share option granted under a Schedule 4 CSOP scheme in tax relieved circumstances (section 524), are treated as having made an election under section 431A(1) to disregard all restrictions, the effect of which is that no further charges would arise upon the lifting of any restrictions. 

If shares are acquired pursuant to options under a Schedule 4 CSOP scheme, and an income tax liability under Section 476 still arises (for example when options are exercised within three years of grant for a non-good leaver reason), there is no exemption from any potential post-acquisition charges that might apply under Chapter 2 of Part 7 ITEPA 2003. Some employers had sought to include within their CSOP rules a requirement that employees enter into a section 431 election on the exercise of the option. Such an election would have the effect of ignoring some or all of any restrictions applied to shares when determining the chargeable amount under Chapter 5 of Part 7.

HMRC prior to Finance Act 2013 only accepted the inclusion of this requirement in CSOP rules if a “relevant restriction applied” to the shares offered under the CSOP option; however, in view of changes arising from the Finance Act 2013 HMRC now accept that CSOP scheme rules can include a requirement for the participant to enter into a section 431 election if there are any restrictions applying to the scheme shares at the time when they are acquired.