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Company Share Option Plan

The Company Share Option Plan is a discretionary share option scheme in which a company can grant selected employee share options.

Background

The CSOP was introduced as the “Share Option Scheme” in the Finance Act 1984, and it became known as the “‘Executive Share Option Scheme” given its use for executive remuneration. After the tax relief was reduced in the Finance Act 1996, it became known as the “Company Share Option Plan”.

According to HMRC statistics, 1,150 UK companies operated CSOPs in 2015–16, increasing by 10 percent  between 2013-14 and 2015-16.

Summary

Under the Company Share Option Plan (CSOP), a company can grant each employee options over shares worth up to £30,000.

No discount can be given on the market value of the shares. There is normally a minimum three-year period before the options can be taken-up. If the share price is higher than the option price, the employee gets the gain and is liable for CGT subject to the £11,000 exemption.

The CSOP is often used by companies which wish to offer participation to all employees including part-timers and those on low wages who would find it difficult to use some of their salary to buy company shares (as with Sharesave or SIP).

Employees can use an advantageous loan arrangement to fund the purchase of the shares under option if they cannot afford them and repay through the proceeds (a cashless exercise).

  • The CSOP is a discretionary share option scheme, traditionally used for selected directors, but increasingly used as an all-employee scheme
  • Shares options are granted up to an initial market value of £30,000 at no less than market value
  • The purchase can be made using the employees’ own funds or through a loan arrangement
  • The employee can sell back as many shares as it takes to repay the loan, creating a ‘cashless exercise’
  • The options can be exercised free of income tax between the third and tenth anniversaries of the date of grant

Further reading