Unapproved Share Option Plan
Unapproved share option plans (USO/USOP) are very flexible, but the disadvantage is that all gains will be subject to income tax at the employee's highest rate and may well be subject also to national insurance contributions.
Usually, therefore, companies seek alternative arrangements where gains are taxed at the more favourable capital gains tax rates of 18 per cent. or less. Try our Share Scheme Selector for suggestions or contact us for advice.
Download the Unapproved Share Option Plan fact sheet
Obtaining favourable tax treatment
For employers who cannot qualify for these schemes there are unapproved arrangements available, in particular the Deferred Share Purchase Plan and the Joint Share Ownership Plan. The participant is treated as investor, not an employee, and gains should therefore qualify as capital not income.
As an investor, however, the participant is exposed to the risks as well as the rewards of share ownership. If this is unacceptable, it may be necessary to offer options under unapproved share schemes, where any gains are taxed as income.
Flowering shares
In certain limited cases, gains on unapproved share schemes awarded to non-employees may be treated as capital gains, not income. Another approach is to award “flowering shares” whose value depends on the achievement of performance targets; the more demanding the targets, the lower the taxable value at award. Any subsequent gains should be capital in nature. However this is normally suitable for unquoted companies only.
You may download our factsheet on unapproved options, or try our Share Scheme Selector for further share scheme suggestions. You can also view our online Directors’ Guide or ask for a free consultation.
