Income Tax (Earnings and Pensions) Act 2003 section 474

Cases where this Chapter does not apply

Section 474 sets out the circumstances in which the charge to tax on receiving a share option does not apply, effectively providing an exemption for certain short-term options where a tax charge could instead arise when the option is exercised.

• No income tax charge arises on receiving a share option if the option expires within ten years of being granted and a charge could arise on exercise instead
• The exemption only applies to options that meet the specific conditions set out elsewhere in the Chapter (sections 471 and 473), ensuring the option falls within scope for a potential charge at the exercise stage
• A tax charge on the grant of an option can still arise under an approved Company Share Option Plan (CSOP) in certain specific circumstances, even where the option would otherwise be exempt
• Outside CSOP schemes, a charge on receiving the option will apply where the option lasts longer than ten years, or where the circumstances mean no charge could arise on exercise — for example, if the employment is outside the scope of UK taxation or the option holder is an office-holder who is neither a director nor an employee