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Company Share Option Plans (CSOPs)

  • 2 min read

Company Share Option Plans (CSOPs) are a share option where a company can grant tax-free shares to an employee or a company director. 

Why are CSOPs not taxed?

Usually, when your company pays you shares, you have to pay Income Tax and National Insurance on their market value. This is because they’re treated as extra income added onto your salary. These taxes also apply when you buy shares from your company at a price that’s lower than the market value; in this scenario, you simply pay tax on the difference.

However, when companies give shares that are part of CSOPs, you won’t pay any Income Tax or National Insurance on the difference between the “strike price” (this is the price you pay when you buy) and the market value at the time of purchase. 

CSOPs are usually used by companies that are too big to qualify for an Enterprise Management Incentive (EMI).

How do Company Share Options work?

There are a few things to remember when it comes to CSOPs:

  • The option you’re sold must be granted at market value
  • You can only be granted up to ÂŁ30,000 of options
  • Any gain you make between the strike price and the market price is only exempt from Income Tax if the options are held for at least three years
  • CSOPs are agreed upon at the company’s discretion – different employees can be offered different options

Are CSOPs totally tax free?

No. Not totally. 

You might still have to pay Capital Gains Tax if you sell the shares e.g. if you make a profit over the CGT allowance of £3,000. If this is the case, you’ll have to declare and pay tax on your profits. You can do this via a Self Assessment tax return.

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