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Unapproved share option schemes

  1. Overview
  2. Taxation of a short option
  3. Taxation of a long option
  4. How to calculate and pay Relevant Tax on Share Options
  5. Disposal of share options

Taxation of a long option

A long option can be exercised more than 7 years from the date it is granted. When you exercise a long option, you may have to pay Income Tax on the grant date and the date you exercise the option.

Taxation on grant date

You will only pay tax if the option price is less than the market value of the shares at the grant date. The tax is due on the difference between:

  • the market value of the shares on the grant date
  • and
  • the amount you pay when you exercise the option.

You will pay Income Tax, Universal Social Charge (USC) and Pay Related Social Insurance (PRSI) on the amount of the difference. Your employer will make the necessary deductions through payroll and pay the tax directly to the Collector-General.

Note

When a long option is granted, the option price is usually equal to the market value of the shares at the date of grant. This means no tax charge will arise at the date of grant.

Your employer will report details to Revenue on the options granted to you.

Taxation on exercise date

When you exercise an option, you must pay Income Tax, USC and PRSI on any gain you make.

The Income Tax and USC due on the exercise of a share option is known as Relevant Tax on Share Options (RTSO). The amount of the gain is the difference between:

  • the market value of the shares on the date you exercise the option
  • and
  • the amount you paid for the shares, plus any amount paid for the grant of the option.

Gains realised prior to 1 January 2024

You must pay RTSO within 30 days of exercising the option and complete a RTSO1 form.

You must file an Income Tax Return (Form 11) for the year you exercise the option. Any tax you paid on the grant of the option will be offset against any tax due when you exercise the option. Your employer will also report details to Revenue of any options exercised by you.

Gains realised on or after 1 January 2024

If you realise a gain on a share option on or after 1 January 2024, your employer will account through payroll for the:

  • Income Tax
  • USC
  • and
  • PRSI

You will not have to file an Income Tax Return regarding this event.

  • Example

    On 1 June 2021, Sara was granted an option to acquire 1,000 shares at €4 per share. The terms under which the share option was granted confirm that it may be exercised anytime up to 1 June 2029. (A long option.)

    The market value per share at the date of grant was €5.50. Tax is due on the difference between the market value and the amount Sara paid.

    Calculation of taxable gain on grant of option
    DescriptionCalculationAmount

    Market value of 1,000 shares on 1 June 2021

    1,000 x €5.50

    €5,500

    Option price payable on exercise

    1,000 x €4.00

    €4,000

    Income gain

     

    €1,500

    Sara’s employer includes the €1,500 in the payroll and deducts the necessary tax. As Sara pays tax at the higher rate (40%), the Income Tax due is €600.

    A credit for €600 will be available for offset against any tax charged on the subsequent exercise.

    Sara exercises her option on 1 June 2023. The market value per share at the date of exercise is €10.

    Calculation of the tax liability on exercise of the option

    Description

    Calculation

    Amount

    Market value of 1,000 shares on 1 June 2023

    1,000 x €10.00

    €10,000

    Option price paid on exercise

    1,000 x €4.00

    €4,000

    Exercise gain

    €10,000 - €4,000

    €6,000

    Income Tax (40%)

     

    €2,400

    USC (8%)

     

    €480

    PRSI (4%)

     

    €240

    Total

     

    €3,120

    Deduct tax paid at grant

     

    €600

    Tax payable at exercise

    €3,120 - €600

    €2,520

    As Sara exercised her option before 1 January 2024, she sends a Form RTSO1 and makes the payment of €2,520 by 30 June 2023. She also has to file an Income Tax Return (Form 11) by 31 October 2024.

Next: How to calculate and pay Relevant Tax on Share Options

Published: 07 February 2024 Print this page

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