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HMRC internal manual

Employment Related Securities Manual

Employment-related securities and options: ‘Market value’ - cashless exercise


At a time when shares are quoted at around £5 an employee wishes to exercise an option to acquire shares in the quoted employing company at an exercise price of, say, £1. The employee agrees with the employer, before the option is legally exercised, to what is often referred to as a “cashless exercise”, so that at the point of exercise either:

  • sufficient shares will be sold immediately to cover the exercise price and the PAYE/NIC with the remaining shares being passed to the employee, or
  • the entire holding will be sold with the net proceeds of sale, after retention of amounts to cover the PAYE/NIC, being passed to the employee.

See ERSM220060 for the valuation of the shares in these circumstances.