Unapproved share option Definition

GLOSSARY

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What does Unapproved share option mean?

'unapproved option' is used to refer to any share option that does not benefit from HMRC tax advantageous treatment.

The term 'unapproved option' is used to refer to any share option which was not granted under any of the statutory tax-advantaged schemes (being a company share option plan (CSOP), an enterprise management incentives (EMI) scheme or a save as you earn scheme (SAYE)), and originates from when the tax-advantaged schemes normally had to be formally approved by HMRC before they could receive the associated statutory tax reliefs. For now, the term continues to be used—despite the fact that, since April 2014, it is no longer necessary to obtain HMRC approval to a statutory tax-advantaged scheme. Unapproved share options can take the form of a standalone unapproved option scheme or form part of an EMI scheme or CSOP.

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Granting unapproved share options pursuant to a standalone share option deed—all-encompassing resource pack

Granting unapproved share options pursuant to a standalone share option deed—all-encompassing resource pack For more general information on unapproved share option schemes, see Practice Note: Unapproved share options. Step Details of step Resources required to implement step Timing of step 1 Determine whether the company qualifies to operate a tax-advantaged share scheme Unapproved share options are often, but certainly not always, used when a company, or the employee, does not qualify to grant or be granted tax-advantaged share options (ie enterprise management incentives (EMI) schemes, company share option plans (CSOPs), save as you earn (SAYE) schemes, and share incentive plans (SIPs)). It is therefore important to first determine whether a tax-advantaged share scheme is possible and appropriate. For further detailed information on the eligibility criteria for the tax-advantaged share schemes, see Practice Notes: When is an EMI scheme appropriate?, How CSOPs work and key features, How SAYE schemes work and key features and What is a SIP?. As early as possible but before step 3 2 Decide...

Exercise of share options—all-encompassing resource pack

Exercise of share options—all-encompassing resource pack This all-encompassing resource pack contains a step-by-step guide for a company administering the exercise of employee share options and the subsequent allotment/transfer of shares, and contains links useful resources to assist in this process. This resource pack can be used in relation to the exercise of enterprise management incentives (EMI) options, company share option plan (CSOP) options, or unapproved share options (including those granted under a long-term incentive plan (LTIP) and can be used as a reference for both private and listed companies. It is not suitable for use in relation to the exercise of Save as you earn (SAYE) options. Step Details of step Useful resources Timing of step 1 Do the terms governing the option permit the exercise of the option in the given circumstances? Has the option already lapsed so that it can no longer be exercised? The ability to exercise will very much depend upon the relevant option documentation, as there is considerable flexibility regarding the design...

Unapproved share options

What are unapproved share options?Share options are rights to acquire shares which can be exercised when certain conditions have been met (such as the passing of a time period or the occurrence of an event), provided that the option holder pays a specified amount to acquire those shares at that time. See Q&A: What is the difference between a share and a share option?The term 'unapproved option' is used to refer to any share option which was not granted under any of the statutory tax-advantaged schemes (being a company share option plan (CSOP), an enterprise management incentives (EMI) scheme or a save as you earn scheme (SAYE)), and originates from when the tax-advantaged schemes normally had to be formally approved by HMRC before they could receive the associated statutory tax reliefs. For now, the term continues to be used—despite the fact that, since April 2014, it is no longer necessary to obtain HMRC approval to a statutory tax-advantaged scheme. Unapproved share options can be granted under a standalone unapproved option...

Unapproved share options—tax treatment

Specific income tax rules (in sections 471–487 of the Income Tax (Earnings and Pensions) Act 2003 (Part 7, Chapter 5) (ITEPA 2003)) apply to securities options that are employment-related. These are the rules that typically bring unapproved share options within the charge to income tax.For further general information on unapproved options, see Practice Note: Unapproved share options. For further information on employment-related securities, see Practice Note: What is an employment-related security?Alternative rules apply to tax-advantaged share options such as: Enterprise management incentives (EMI) schemes, save as you earn (SAYE) schemes and company share option plans (CSOPs). For further details of the tax treatment of these share options, see Practice Notes:•Enterprise management incentives (EMI)—income tax and NIC treatment of options•EMI—CGT, including business asset disposal relief (previously entrepreneurs' relief) and corporation tax relief•CSOP—income tax and NIC treatment of options•CSOP—CGT treatment and corporation tax treatment•SAYE—income tax and NIC treatment of options, and•SAYE—capital gains tax treatment of optionsThis Practice Note explains the tax treatment of unapproved share options, which is broadly as follows:•no income...

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Covering letter to unapproved option holders for options granted pursuant to unapproved share option rules and agreement

Covering letter to unapproved option holders for options granted pursuant to unapproved share option rules and agreement [insert date of letter] [insert name of employee] [insert address of employee] Dear [insert name of employee] [insert name of Company] (Company) Option to be granted under the [insert name of unapproved share option scheme] (Scheme) I am delighted to notify you that the directors of the Company have approved the grant of an option to you under the Scheme (Option). I enclose a copy of the rules of the Scheme and the option agreement, which needs to be executed by you and the Company in order for the grant of the Option to take effect. Summary of the Option’s terms The Option will entitle you to purchase [insert maximum number and type of shares which can be exercised pursuant to the option agreement] shares in the Company at a price of [insert exercise price of shares] per share [if, broadly, there is an ‘Exit’ event of the Company...

Standalone unapproved share option agreement for a worker via an employer of record

Standalone unapproved share option agreement for a worker via an employer of record This Agreement is made on [insert date of execution of the share option agreement] Parties 1 [insert name of company whose shares are being granted under option] (registered number [insert registered number of company]) whose registered office is at [insert registered address of company] (the Company); and 2 [insert name of option holder] of [insert address of option holder] (the Option Holder) Background (A) The Company has agreed to grant to the Option Holder as at the date of this Agreement an Option to acquire Shares on the terms set out in this Agreement. (B) The Company will satisfy the exercise of the Option by transferring or procuring the transfer of Shares or issuing new Shares. (C) The Option is a not a tax-advantaged option. 1 Definitions In this Agreement, except where the context otherwise requires, the words and expressions set out below will bear the following meanings, namely: Contract • means the contractual arrangements...

Dive into our 10 Precedents related to Unapproved share option

Can a company operate an employee share scheme which allows those who voluntarily resign the same award as those who just retire?

Can a company operate an employee share scheme which allows those who voluntarily resign the same award as those who just retire? In summary, a company is able to structure its share scheme so that it allows those who voluntarily resign the same equity bonus as those who retire, however, depending on the type of employee share scheme the company is adopting, the awards may not be able to benefit from the same tax-advantaged treatment. There are both tax-advantaged and non tax-advantaged share schemes. As a general rule, tax-advantaged schemes are less flexible and the terms of the scheme that need to be imposed in order to be able to benefit from tax relief are often dictated to by legislation. Depending on the type of tax-advantaged share scheme a company is thinking of adopting, it may or may not be possible to allow those who voluntarily resign, the same equity bonus as those who retire whilst maintaining the same tax treatment for both. However, the terms of a...

Does section 144ZA of the Taxation of Chargeable Gains Act 1992 still apply in respect of unapproved options which can be settled in cash?

Does section 144ZA of the Taxation of Chargeable Gains Act 1992 still apply in respect of unapproved options which can be settled in cash? Section 144ZA of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) acts to disapply TCGA 1992, s 17 (the market value rule) in relation to an unapproved share option where the option binds the grantor to sell. This results in the disposal proceeds on exercise of the option and sale of the shares being determined by reference to the actual exercise price, rather than market value (TCGA 1992, s 144ZA does not disapply TCGA 1992, s 17 with respect to the consideration paid for the grant of an option). Accordingly, in respect of the exercise of unapproved share options, the base cost of the shares for capital gains tax (CGT) purposes is the sum of the amount actually paid for the shares (the exercise price) and the amount charged to income tax on exercise. This equates to the market value of...

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Share Incentives weekly highlights—13 July 2023

This week's edition of Share Incentives weekly highlights includes (1) royal assent for the Finance (No. 2) Bill 2023, (2) the Chancellor’s Mansion House speech in which he outlined the government’s planned reforms to the financial services sector and next steps on the Edinburgh Reforms, (3) the European Commission adopting an adequacy decision for the EU-US Data Privacy Framework, (4) the launch by UU��ֱ��® Share Incentives of a new subtopic covering equity awards for individuals engaged through an employer of record or professional employer organisation structure, and (5) the publication of a new Q&A looking at what changes might typically be required to a US share option plan in order for options granted under a UK sub-plan to be qualifying EMI options.

TCGA 1992, Section 144ZA applies regardless of discretion to satisfy options other than in shares (Davies v Revenue and Customs Commissioners [2018] UKUT 130 (TCC))

Share Incentives analysis: The Upper Tribunal upheld the FTT’s ruling that Section 144ZA of the Taxation of Chargeable Gains Act 1992 (TCGA 1992)—which disapplies TCGA 1992, s 17 (the market value rule) in relation to an option where the option ‘binds the grantor to sell’—still applies regardless of whether the grantor has a discretion as to whether to settle the share option in cash or shares.

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