Unapproved share options

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) 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:

- a short option, which must be exercised within seven years from the date it is granted

- 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 income tax on any gain you make. The amount of the gain is the difference between the market value of the shares when you buy them and 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 income 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 the market value of the shares on the grant date and the amount you pay when you exercise the option.

When you exercise the option, the tax is due on the difference between the market value of the shares on the date you exercise them and 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.

Examples on unapproved share schemes include:

Free shares

You can receive free shares under a formal share plan or a once off award as a benefit-in-kind by your employer. The value of the benefit is the market value of the shares at the date of the award.

The shares may be subject to a vesting period. If so, the value of the benefit is the market value of the shares at the date of vesting.

You pay Income Tax (IT), Universal Social Charge (USC) and Pay Related Social Insurance (PRSI) through the PAYE system.

Discounted shares 

Your employer may give you the opportunity to buy shares in the company at a discounted price. The discount is the difference between the market value of the shares at the date of the award and the amount you pay for them.

You will pay IT, USC and PRSI on the discount amount. All deductions will be made through the PAYE System.

Forfeitable shares

Your employer may award you shares that are subject to forfeiture. For example, if you leave the company or fail to meet expected performance conditions. You must pay IT, USC and PRSI on the market value of any free shares awarded, or on the value of discounted shares. You will be charged tax on the date the shares are awarded even though they may be forfeited. All deductions will be made through the PAYE System.

If the shares are forfeited, any tax charged when they were granted will be reduced to nil. You will receive repayment of the tax overpaid. You must submit a written claim for repayment to your Revenue Office. You must do this within four years from the end of the tax year in which the shares are forfeited.

Convertible securities

A convertible security is a type of share or stock that can be converted into or exchanged for another type of share or stock. In this scenario, your employer will award you convertible securities. You must pay Income Tax, USC and PRSI on the market value of the securities at the date you received them. The deductions will be made through the PAYE system.

A further Income Tax charge may also arise if and when those securities are converted into or exchanged for other securities.