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Incentive Stock Option

  • 2 min read

An Incentive Stock Option gives an employee the right to buy stock shares at a discounted price. 

If your employer offers you company shares, you could get tax advantages. An example is not paying Income Tax or National Insurance on the shares’ value. This is because these incentive stock options are not seen as ordinary income in the eyes of HMRC.

What taxes will you need to pay?

The main benefit of shares bought through an Incentive Stock Option is tax-related. You basically won’t pay any tax on them when you first buy them. 

Here’s how it works: you decide to sell them after two years (the minimum period before you can sell). Then you make a profit over the Capital Gains Tax threshold (£3,000 in the 2024/25 tax year). At this point, you would have to pay Capital Gains Tax.

Why are Incentive Stock Options better than regular share options?

If you decide to set up an investment portfolio, you can end up paying the following taxes:

Buying shares through an Incentive Stock Option is a much better deal compared to regular shares or share options. This is because you’ll only be subject to CGT when you decide to sell your shares for a profit.

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