Taxation of employment related shares

Restricted shares

Your employer may place a restriction on when you can dispose of your shares. This can include shares you acquired on the exercise of a share option. These shares are known as restricted shares. Restricted share schemes are also sometimes referred to as 'clog schemes'.

If you have been awarded restricted shares, you are required to retain your shares for a fixed period of at least one year. You are not permitted to dispose of your shares during this period, except in limited circumstances (such as death or company reorganisation). You are deemed to have disposed of your shares if you:

  • sell them
  • transfer or pledge them to someone else
  • use them as a guarantee for a loan.

Taxation of restricted shares

Normally the amount chargeable to tax is the difference between:

  • the market value of the shares at the date of acquisition
  • and
  • the price (if any) paid by you.

You must pay Income Tax (IT)Universal Social Charge (USC) and Pay Related Social Insurance (PRSI) on the date of acquisition of the restricted shares.

To take account of the restriction placed on you from disposing of your shares, the amount chargeable to tax is reduced. The amount of the reduction is between 10% and 60% depending on the length of the restriction period. 

Reduction of IT, USC and PRSI by length of clog period
Number of years of restrictionAmount of reduction

1

10%

2

20%

3

30%

4

40%

5

50%

More than 5 years

60%

Your employer will make the necessary deductions through payroll and pay the tax directly to the Collector-General.

Change or removal of restriction

The restriction may be changed or lifted before the end of the agreed restriction period. If this happens then the amount of IT, USC and PRSI you paid on the date the shares were awarded must be adjusted. The adjustment must take account of the actual period the restriction was in place. For example, if the restriction period is changed from four years to two years, the reduction rate changes from 40% to 20%.

You must inform Revenue of any additional IT, PRSI and USC due. You can contact Revenue:

Your employer will not make these adjustments through payroll. You can contact Revenue 

Capital Gains Tax (CGT)

If you dispose of your shares, you may be liable to CGT. You must report this disposal to Revenue, even if no tax is due. Your employer will not deduct any tax or report the disposal for you.

Next: Forfeitable shares