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Share Options schemes – tax implications

Share Options schemes – tax implications

Unapproved share options

An unapproved share option scheme is a scheme operated by an employer which has not got approval from the Revenue Commissioners.

A share option is a right that your employer grants you to acquire shares in the company. The shares may be at no cost to you (nil option) or at a pre-determined price your employer sets. You must pay Income Tax (IT), USC and PRSI on any gain you make on the exercise, assignment or release of a share option.

Capital Gains Tax (CGT) may also be due when you dispose of your shares.

There are two types of share options:

  1. a short option, which must be exercised within seven years from the date it is granted
  2. a long option, which can be exercised after seven years from the date it is granted.

Short option

When you exercise a short option, you pay IT, USC, and PRSI on any gain you make. The amount of the gain is the difference between:

  1. the market value of the shares when you buy them
  2. the amount you paid for the shares (plus any amount paid for the grant of the option).

Long option

When you exercise a ‘long option’, you may have to pay tax on the grant date and the date you exercise the option. You will only pay IT if the option price is less than the market value of the shares at the grant date. The tax is due on the difference between:

  1. the market value of the shares on the grant date
  2. the amount you pay when you exercise the option.

When you exercise the option, the tax is due on the difference between:

  1. the market value of the shares on the date you exercise them
  2. the amount you paid for the shares.

Any tax you pay on the grant of the option will be offset against any tax due when you exercise the option.

Relevant Tax on Share Options (RTSO)

The tax due on the exercise of a share option is known as RTSO.

You must pay RTSO within 30 days of exercising the options. You must also calculate the Universal Social Charge (USC) and Pay Related Social Insurance (PRSI) due and pay this directly to the Collector General.

You must complete a RTSO1 Form when making your payment.

You must also complete a Form 11 for every year that you exercise options.

Any queries on the above give me a call on 091 763817 or email me at oliver@taxreturnhelp.ie

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