Company Share Option Plan (CSOP)
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      1. Vestd Help Centre
      2. Shares, Growth Shares and Options
      3. Company Share Option Plan (CSOP)

      What tax do I have to pay as a CSOP option holder?

      What are the tax benefits when you exercise CSOP options?

      The Company Share Option Scheme (CSOP) is a tax-advantaged scheme backed by HMRC. As long as you exercise (pay for your options to become shares) after 3 years, but before 10 years, from the grant date (date of your CSOP agreement) then there is no Income Tax to pay when exercising.

      What that really means for you 

      • You will have been granted options at the market value on the day of your agreement (grant date).
      • Three years later that value will have hopefully increased, as your company grows and the share price goes up.
      • Because these are CSOP options and you exercise between 3-10 years from grant, you will not have to pay any income tax when exercising - regardless of how much those shares have increased in price. 
      • However, if this happened in a non-tax advantaged scheme, income tax would be payable on any gain in price.
        • As an example, consider the following. Imagine you have been granted 1,000 options, with an exercise price per share of £1.00. You exercise and sell these three years later, and the value is now £5.00 per share.
        • If these were not CSOP options, income tax would be applied to the gain from £1.00 to £5.00. In this case, you'd pay income tax on £4,000 profit (£4 gain per share x 1,000 shares)
      • As you've been granted CSOP options, you're in a tax advantaged position. When you come to sell them, you'll be paying Capital Gains Tax (CGT) on any gain between the price you paid (exercise price) and the price you sell them for will be subject to. The good news is that CGT is a lot cheaper for you than income tax.
        • Let's use the same example as above - you have been granted 1,000 options, with an exercise price per share of £1.00. You exercise and sell these three years later, and the value is now £5.00 per share.
        • As these are CSOP options, CGT would be applied to the gain from £1.00 to £5.00. But, let's say you have not used your annual CGT allowance of £3,000 (see here for more info on allowance). In this case, you'd pay CGT on only £1,000 (£4 gain per share x 1,000 shares, less your £3,000 CGT allowance), rather than income tax on £4,000

      That's a very good reason to have a CSOP option!