ETASSUM40140 - Schedule 4 Company Share Option Plan (CSOP): Grant of share options - whether rights are acquired

Terms of options

It is clear from the tax case law on tax advantaged employee share schemes that:

• to determine whether an option gives its holder legally enforceable “rights to acquire shares”, it is necessary to consider closely its precise terms at the time the option is granted, (CIR v Burton Group plc) (ETASSUM47250),
• to determine exactly what rights it gives its holder, and when those rights were obtained by the option-holder, it is necessary to consider closely, at any given time, the precise terms of a share option, (CIR v Eurocopy plc (ETASSUM47260) and CIR v Reed International plc) (ETASSUM47270).

Scheme organisers will need to ensure that for a scheme to meet the requirement of providing participants with legally enforceable “rights to acquire shares” it must provide for the key terms of the option to be clearly stated at the time it is granted (see below).

The key terms of an option are:

• the asset under option which the option-holder has a right to acquire (in the case of a share option this will be reflected by a specified number of shares of a specified class),
• the price at which the option can be exercised, and
• the time when the option is exercisable.

Whether the terms of options are sufficiently clearly stated must be considered in the light of the decision in CIR v Burton Group plc (63 TC 191). Further guidance on this case is at ETASSUM47250.