So is it completely tax free?
No, if Grace sells the shares – which she might do either immediately or after some time – she will then have to pay capital gains tax (CGT) at 20% (for a higher rate taxpayer) on any gain she has made up to the point of sale. But apart from the lower rate, it will often be much better to pay CGT than income tax or NI because:
- there is an additional tax free slice under the CGT annual exemption
- spouse/civil partner transfers may also be used to reduce the liability further
- unlike income tax or NI, CGT is due only when she sells the shares, and so when she has some cash to pay her tax bill.
Your company will often be able to claim a deduction against corporation tax for the full amount of an employee’s option gains.
Are there any limits?
No employee may be granted CSOP options over shares worth more than £30,000. So in our example Grace could not immediately be granted any more options, although additional options which are not tax-advantaged could be granted.
Can my company have a CSOP?
Most independent companies will be able to meet the requirements of the CSOP legislation.
Shares must be:
- in a company not controlled by another company
- ordinary shares, fully paid, not redeemable