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HMRC internal manual

Shares and Assets Valuation Manual

HM Revenue & Customs
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Tax Advantaged Share Schemes: rights issues - CSOP and SAYE Schemes

Adjustments to reflect rights issues are more difficult and The Employee Shares and Securities Unit (ESSU) will normally refer the company’s proposals to SAV for advice on whether the adjustments are acceptable. They nearly always concern options over quoted companies.

The basic principle is that the “necessary” adjustment is one which would adjust the option price (which is based on the market value of the shares at the date of grant) and the number of shares, to what it would have been had the new share structure been in place when the options were first granted.

The following formula is acceptable for computing the adjustment to be applied to the original option exercise price to take account of a rights issue. But it is not necessarily the only method of adjustment acceptable to SAV.

Adjust by: A divided by M

Where A is the average value of a share following the rights issue (the theoretical ex-rights price); and

M is the mid-market value of a share on the last day the shares were quoted cum-rights

The average value of a share following the rights issue (A) is computed by:

(NxM) + (RxP) divided by N + R

Where N is the number of shares required to entitle the holder to “rights” shares.

M is the mid-market price of each of those shares on the last dealing day cum-rights.

R is the number of “rights” shares offered per N.

P is the price at which each “rights” share is offered.

The number of shares in the option is then adjusted by the reciprocal of the above.

so M divided by A


  • Existing option over 1110 shares at 40p p.s.
  • Company makes 1 for 4 rights issue at 50p p.s. (N=4; R=1; P=50p)
  • Mid-market price of a share on last day quoted cum-rights (M) = 80p p.s.

Average Price (A) = (4x80p)+(1x50p) divided by 4+1 = 74p p.s.

  • Adjusted option exercise price is 40 x (74 ÷ 80) = 37p
  • Adjusted number of shares is 1110 x (80 ÷ 74) = 1200 shares
  • Aggregate option exercise price remains as £440 (now 1200 shares x 37p each)
  Additional Guidance:SVM150000