Income Tax (Earnings and Pensions) Act 2003 section 524

No charge in respect of exercise of option

Section 524 sets out the conditions under which the exercise of a share option granted under a Company Share Option Plan (CSOP) scheme will be free from income tax.

• No income tax arises on exercise of a CSOP option provided the scheme meets Schedule 4 requirements, either Condition A or Condition B is satisfied, and tax avoidance is not a main purpose of the arrangements
• Condition A requires exercise between the third and tenth anniversaries of the grant date; Condition B allows earlier exercise where the individual has left qualifying employment due to injury, disability, redundancy, retirement, a TUPE transfer, or loss of group company status, provided exercise occurs within six months of leaving
• A separate exemption applies where the option is exercised before the third anniversary in connection with a takeover, general offer, compromise or arrangement, or non-UK reorganisation, provided the individual receives only cash for the shares, the corporate event was not planned when the option was granted, and tax avoidance is not a main purpose
• Special rules apply to the exercise of options following the death of the option holder, as provided for under paragraph 25 of Schedule 4

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