Share Options

Consult Holland & Co over Share Options

 What is a company share option plan?

A company share option plan is a plan set up by your employer under which you may be given a right, known as a 'share option', to buy a certain number of shares at a fixed price at a particular time.

If the scheme meets certain requirements HMRC will approve it. Tax advantages are available to you for share options you receive under an approved scheme provided certain conditions are met.

 What is a share option?

A share option is a right to buy

  • a set number of shares in a company,
  • at a fixed price,
  • during a set period of time.

In a company share option plan the price of the shares is fixed at the time you are given your option. The price must not be less than the market value of the shares at that time. You can then exercise the option to buy shares, at the fixed price, during the set period of time.

You do not have to exercise your option to buy shares. Whether you do or not will usually depend on the value of the shares at the time you can exercise the option.

 What are the requirements for a scheme to be 'approved'?

The main requirements for approval of a scheme concern

  • who can be given options under the scheme
  • what value of shares subject to the options that can be given to those who take part in the scheme
  • the sort of shares that can be used in the scheme
  • the fixed price of the shares under an option
  • the set period of time for exercising an option to buy shares.

 What are the tax advantages?

If you get your share option under a company share option plan which has been approved by HMRC, you may not have to pay income tax when

  • you are given the share option and
  • you exercise it to buy shares, if certain conditions are met.

 Who can take part?

Your employer decides which of its employees can take part in its approved company share option plan. However, you can take part only if

  • at the time you receive a share option you are either
    • an employee, or
    • a full-time director, working at least 25 hours a week,

of the company which set up the plan, or, if the plan covers more than one of the companies in a group, of any one of the companies in the plan, and

  • you do not already have a material interest in the company.

 What is a material interest?

For the purposes of a company share option plan, you have a material interest in a company if you already own, or hold options over, more than 25% of the company's ordinary shares.

You cannot receive options under a company share option plan, or exercise any options you already hold, if you have (or have had within the preceding 12 months of that date) a material interest in a close company

  • whose shares are used in the scheme, or
  • which has control of such a company, or
  • which is a member of a consortium that owns such a company.


A company is a close company if, broadly, it is under the control of five or fewer shareholders, or of shareholders who are directors

 What sort of shares are used in the plan?

The shares must be part of the ordinary share capital of the company which has set up the plan, or the company which controls it. They must have the same rights (for example to dividends and bonus issues) as other ordinary shares. However, you will not receive dividends or be able to vote at company meetings until you have actually bought the shares.

The shares must be:

  • quoted on the Stock Exchange, or
  • in an unquoted company which is not controlled by another unquoted company.

 At what price can I buy the shares?

The price of the shares is fixed at the time you get your option. It must not be less than the market value of the shares at that time.

 Is there a limit on the size of options I can receive?

There is a limit on the total value of shares over which you can hold options under an approved company share option plan. The total value of the shares at the time you receive an option must not exceed £30,000 calculated at the date of grant of the options.

The £30,000 limit also includes the value of shares under options given to you under any other approved company share option plans set up by your employer or by a company associated with your employer.

Not included in the limit is the value of shares under options which you

  • hold under savings-related share option schemes.
  • received under approved executive share option schemes between 17 July 1995 and 28 April 1996 and which did not qualify for tax relief because they exceeded the limit.

 When can I exercise my option to buy shares?

The plan rules will set out when you can exercise your option to buy shares. A company can decide which rules to include in its plan about when options can be exercised and whether other conditions, for example performance targets, must be met before the options can be exercised. These rules must be clearly set out at the time you receive your option.