Unapproved share option schemes

Taxation of a long option

A long option can be exercised more than seven years from the date it is granted. When you exercise a long option, you may have to pay Income Tax (IT) 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
  • amount you pay when you exercise the option.

You will pay IT, 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 IT, USC and PRSI on any gain you make.

The IT 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
  • amount you paid for the shares (plus any amount paid for the grant of the option).

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.

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