Unapproved share option schemes

Taxation of a short option

This option must be exercised within 7 years from the date it is granted.

Taxation on grant date

There is no tax due on the date that the right is granted. Your employer will report details to Revenue of the options granted to you.

Taxation on exercise date

When you exercise an option, you must pay Income TaxUniversal Social Charge (USC) and Pay Related Social Insurance (PRSI).

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. The 30 day period is inclusive of the exercise date.

You must also file an Income Tax Return (Form 11) for the year you exercise the option. You should include details of the RTSO already paid in the relevant section of the form. 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.

Cashless exercise

You might ask your employer to sell your shares, rather than provide cash to exercise the option. If you do, this is known as a 'cashless exercise' or 'same day sale'.

You might do this in order to finance both the option price and the tax liability arising on exercise. The Income Tax position remains the same.

You will also need to consider any Capital Gains Tax (CGT) implications of selling the shares.

Taxation on assignment or release of share options

You must pay Income Tax, USC and PRSI on any gain realised on the assignment or release of a share option.

The amount of the gain chargeable to tax is the difference between:

  • the amount you receive for the assignment or release
  • and
  • the amount you paid, if any, for the grant of the option.

If you receive a cash payment from your employer to release your share option, this is taxable. Your employer will make the necessary deductions through payroll and pay the tax directly to the Collector-General.

Next: Taxation of a long option