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Tax on Share Options

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How to pay tax on Share Options

Have you received share options from your employer and not sure what to do about your tax? Here we look at what tax you need to pay on Share Options and when …

By David Barry

So firstly, what are share options?

A share option is a right granted by a company to its employees or directors to acquire shares in it or other companies at a pre-determined price which is usually less than the current market value.
 
For example, say your employer’s share price today is €150 per share, you might get an option to buy at a reduced price of €140.
 
 

What type of share schemes are there?

There are several different types of share option schemes out there but generally they are broken into two categories:
 

1. Approved Share Option Schemes

These are schemes which have been reviewed and approved by the Revenue Commissioners. If you are under such a scheme the Income Tax you need to pay is generally deducted via your payroll. If you are unsure if you are on an Approved Scheme you could ask your HR department or you can see a current list of the Approved Schemes is available on the Revenue website.

 

2. Unapproved Share Option Schemes

These are essentially all other share option schemes which do not qualify as approved share option schemes.

Historically, for any exercises of unapproved share options prior to 01 January 2024, tax (Relevant Tax on a Share Option) which arose in respect of an Unapproved Share Option Scheme must be calculated and paid over to Revenue by you - the employee. Form RTSO1 should be submitted for these historical exercises within 30 days, along with the tax payment. Additionally, you are deemed to be a chargeable person in the year you exercise Options, therefore a Form 11 income tax return should also be filed. 

Any share options exercised from 01 January 2024 follow a ‘new’ process, which shifts the burden of responsibility from the employee, to the employer. Now the employer should deal with the tax on exercises of share options via payroll. 

 

Tax on Share Options

 
Being granted Share Options by your employer can lead to a significant windfall for you. Quite often employees receive these options not really knowing what they are and, most importantly, the tax obligations associated with these options.
 
Being granted a share option will usually trigger two taxable events for you:
 
  1. Income Tax when you receive/trigger the option to buy the shares and 
  2. Capital Gains Tax when you sell the shares on to somebody else.

 

 

1. Income Tax on Share Options

 

What happens if I received shares under an Approved Scheme?

If you are under an approved scheme then the good news is the Income Tax will already have been sorted for you via your payroll.
 

What income tax do you need to pay under an unapproved share option scheme and when?

Historically, for Share Options exercised before 1 January 2024, the Income Tax has not been sorted by payroll so you need to handle this yourself. 
 
Essentially you will pay income tax on the difference between the price which you pay to acquire the shares i.e. the “option price” and the market value of the shares if an independent third party were to buy them.
 
For example, if you were granted an option to buy 100 shares at €140 and the market value of these shares was €150 then there is a benefit to you of €10 per share or €1,000.
 
You need to pay Income Tax on this €1,000 within 30 days of triggering the option to buy the shares. 
 
To do this you need to fill in an RTSO1 form. Note you will also have to file an Income Tax Return for the tax year in which you triggered the option even if no further taxes are due. 
 
It is important to note that Budget 2024 announced a shift in who is responsible for reporting share options to Revenue. As outlined above, from 01 January 2024 the onus will be on the employer, not the employee. 
 
 

2. Capital Gains Tax

 

So what happens when I eventually sell the shares?

Whether you are on an Approved or Unapproved Scheme you will need to calculate your CGT liability and pay if there is tax due. 
 
When you eventually decide to sell the shares you will pay Capital Gains Tax on the difference between the money you receive for the shares when you sell them and the market value of the shares when you triggered the option to buy them. 
 
Taking our example above a step further if you decided to sell the shares a year later when the market value was €200 per share you would have made a gain of €50 per share i.e. €200 sales price - €150 market value when you triggered the option.
 
If you sold all 100 shares then your total gain would be €5,000
 
The first €1,270 of gains made by any individual in a tax year are exempt from Capital Gains Tax and so the taxable capital gain is €3,730 i.e. €5,000 - €1,270.
 
The current Capital Gains Tax Rate is 33% so your tax bill would be €1,230.90
 

When is the CGT due?

If the shares are sold on or before 30 November CGT is due by 15 December in the same tax year, while if the shares are sold during the month of December the payment date is 31 January in the following year.
 
Details of the calculation of the Capital Gain must also be included on the Income Tax return of the employee for the tax year that the gain was made.
 
 

 

We can help

 
TaxAssist helps thousands of taxpayers every year figure out what they Revenue, file the relevant forms and pay their tax. We will make sure you pay the correct tax whilst ensuring all reliefs are claimed. If you would like us to handle the tax on your share options get in touch for a free consultation today.

 

Book your FREE Initial Consultation

 

Date published 16 Mar 2022 | Last updated 24 Apr 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

David Barry

David Barry is a Chartered Tax Advisor (CTA) with the Irish Tax Institute. David trained in Ernst & Young and is a highly experienced tax advisor. He has significant experience in accounts, tax returns and advising clients in the SME sector. He also has a particular interest in the importance of succession planning for businesses.

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