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Incentive stock option

An incentive stock option is an option that gives an employee the right to buy stock shares at a discounted price.

If you’re an employee, the most significant advantage is that they are not considered ordinary income, so you don’t pay income tax on them. If you do decide to sell them after two years (the minimum period before you can sell) and make a profit over the Capital Gains Tax threshold (£12,000), then you would have to pay Capital Gains Tax.

That’s a much better deal compared to regular shares or share options, where you pay tax twice: when you receive them (Income Tax) and when you sell them for a profit (Capital Gains Tax).

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