The short version: CSOPs (Company Share Option Plans) let employers give employees the option to buy company shares at a fixed price, with tax advantages.
Why are they tax efficient?
Normally, if your employer gives you shares or lets you buy them cheaply, you pay Income Tax and National Insurance on the benefit. With a qualifying CSOP, you don’t pay income tax or NI on the difference between what you pay and what the shares are worth when you exercise the option.
What are the rules?
The option has to be granted at market value. There’s a limit on how much you can be granted. And you usually need to hold the options for at least three years before exercising them to get the full tax benefit.
Are they completely tax free?
Not quite. When you eventually sell the shares, you might owe Capital Gains Tax if you make a profit above your annual allowance. But you’ve avoided the Income Tax and NI that would otherwise apply.
Been offered share options and want to understand how they work? Give us a shout and we’ll explain your options.
