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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

Company Share Option Plan (CSOP): Taxation: Non-residents and share options - general

Post 6 April 2015

FA 2014 introduced new rules in Chapter 5B of Part 2 ITEPA, which have effect from 6 April 2015, regardless of when the options were acquired. The new rules broadly aim to apply UK taxation to income from options that relates either to UK duties or residence, or is remitted to the UK. This is achieved by applying the rules in Chapter 5B to establish the proportion of the income from the option which is subject to UK tax. The new rules reflect the OECD principles for taxing share options and are broadly in line with the taxation of cash earnings. Details of the new rules are found at ERSM162100 onwards.

Section 474(1) and Chapter 5A of Part 2 ITEPA (mentioned below) were repealed from 6 April 2015.

Post FA 2008

From 6 April 2008 FA 2008 removes section 21 and amended section 474(1) so that Chapter 5 of Part 7 ITEPA will apply to an option gain if the individual concerned was UK resident at the time of grant. It was of no consequence whether or not the individual concerned was also ordinarily resident (or UK domiciled) at that time. As a result it was recognised that some of the employment income that would be charged by Part 7 may relate to foreign duties. As a means to address this new Chapter 5A of Part 2 applied the remittance basis to such employment income. Further guidance on this can be found in Employment Related Securities Manual (ERSM). 

Pre FA 2008

Section 476 ITEPA applies to gains realised by the exercise, assignment, or release of share options which were granted by reason of an employment unless the earnings from that employment were not general earnings to which section 15 or 21 applied. In effect this means options which were granted when the director or employee was resident and ordinarily resident in the United Kingdom. The residence of the option-holder when the gain is realised (for example when the option is exercised) is irrelevant for the purposes of Section 476.

Options granted when the option-holder was not resident in the UK are unlikely to be within the scope of Section 476, but their grant and/or exercise may, in certain circumstances, give rise to an income tax charge under Chapter 3C (shares acquired for less than market value (see ERSM70000+)).