Income Tax (Earnings and Pensions) Act 2003 section 519

No charge in respect of exercise of option

Section 519 sets out the conditions under which no income tax charge arises when an employee exercises a share option granted under a Save As You Earn (SAYE) option scheme.

• No income tax arises on exercise of an SAYE share option provided the option is exercised in accordance with the scheme rules, at least one of two timing conditions is met, and the arrangements are not primarily motivated by tax or NIC avoidance.
• The normal rule (Condition A) is that the option must be exercised on or after the third anniversary of its grant date; early exercise (Condition B) can also qualify for relief provided it is not triggered by certain specific scheme provisions relating to leaving employment or company events.
• Where a corporate event such as a takeover, general offer, compromise or arrangement, or non-UK reorganisation causes early exercise, there is still no income tax charge on the shares acquired, provided the employee receives only cash for the shares, the corporate event was not planned or contemplated when the option was granted, and there was no opportunity for the employee to use a rollover arrangement that would have prevented the share acquisition.
• Schedule 3 contains additional protections: it allows exercise of an option after the holder's death and ensures that an SAYE scheme continues to be treated as a qualifying Schedule 3 scheme at the time of exercise even if its formal status has since been withdrawn.