CG56450 - SAYE share option schemes: outline

Approved SAYE share option schemes are set up under Chapter 7 Part 7 and Schedule 3 ITEPA03 and TCGA92/Sch7D. They operate on the basis that all employees and full-time directors of the company concerned with five years service must be offered an opportunity to participate in the scheme on similar terms. There should be no preferential treatment for directors or higher paid employees. For this reason, they are sometimes referred to as `all employee’ share option schemes.

The company that is operating the scheme may grant to its directors and employees and to directors and employees of other group companies which are participating in the scheme options over its shares or perhaps over shares of another group company. More general information on share options is given at CG56302.

The price to be paid for the shares must be fixed when the option is granted. The price must not be less than 80 per cent of the market value of the shares at the time the option is granted.

Employees who take up the offer of options must take out a Save As You Earn contract, approved by HMRC for the purposes of the scheme, with a bank, building society or the Department of National Savings. When the contract matures at the end of a three, five or seven-year period its proceeds equal the amount required to exercise the options. But the employees are not forced to exercise the options; they can take out the proceeds of their savings contracts to spend as they wish, and allow the options to lapse.

These schemes can be operated in conjunction with Employee Benefit Trusts, see CG56531+.

For more detail see ESSUM30000+ and ERSM302100.

Any Capital Gains Tax consequences for the employer are the same as described for Company Share Option Plans see CG56415, substituting for ITEPA03/S524, ITEPA03/S519.

The Capital Gains Tax consequences for the employee are also the same as described for Company Share Option Plans, see CG56425-CG56433, substituting for ITEPA03/S524, ITEPA03/S519.

As for paragraph 13 Schedule 7D TCGA92 in relation to Income Tax exemption under s524 ITEPA, so paragraph 10 Schedule 7D TCGA92 specifically disapplies the market value rule, s17(1) TCGA92, as regards both the disposal and acquisition of the shares on the exercise of the option if S519 ITEPA03 applies to prevent a charge to Income Tax.

Previously, Section 185(3)(a) ICTA88 provided for there to be no Income Tax charge on exercise of the option; Section 185(3)(3)(b) provided the corresponding disapplication of the market value rule for Capital Gains Tax and predates that given by TCGA92/S144ZA for options generally, see CG12397.