Employee Shares – Glossary of Key Terms

Have you received shares from your employer? There are various different share schemes that you may be part of and there are also different types of tax that you may need to pay. Here are some explanations of the main terms used when talking about employee shares:

 

Share Option

Share options are a benefit granted to employees. A share option allows the employee to purchase shares in a company at a set rate which is often below the current market value. Read more about tax on share options here

 

Share Awards

Share awards are when your employer gives you shares in the company as part of a bonus or remuneration package.

 

Restricted Stock Units (RSUs) and Tax

Restricted stock units, or RSUs, are stock units in a company. They are restricted because they will not be transferred to you, the employee, until certain conditions have been met. When they are transferred to you one day they are said to “vest”. Once vested, they are now in your ownership and you will be allowed to retain or sell them on. A typical example of a condition is that you have stayed with the company for a certain number of years. Read more about RSUs and tax here

 

RTSO1

If you ae part of an Unapproved Share Scheme you need to you will pay Income Tax, PRSI and USC 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. This income tax is known as RTSO (Relevant Tax on a Share Option). You need to file an RTSO1 form with Revenue and pay this tax within 30 days of triggering the option to buy the shares.

 

Capital Gains Tax (CGT)

Individuals are charged Capital Gains Tax (CGT) in respect of gains made from selling, transferring or otherwise disposing of assets including stocks and shares. When you decide to sell 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. The current Capital Gains Tax Rate is 33%

 

Employee Stock Ownership Plan (ESOP)

An employee stock ownership plan (ESOP) is an employee benefit plan that gives workers’ ownership interest in the company; this interest takes the form of company shares. Usually it is part of a compensation package, where shares will vest over a period of time.

 

Approved Profit Sharing Scheme (APSS)

If your employer operates an APSS, they may allocate free shares to you, provided you meet certain conditions. Your employer can allocate shares to you up to a maximum annual limit of €12,700. The shares allocated to you must be held in a trust set up by your employer. The shares must be held in the trust for a specified period of retention (generally two years). If you leave the shares in the trust for three years, you will be exempt from Income Tax.

 

Save As You Earn (SAYE)

Your employer may grant you share options under an approved savings related share-option scheme. If so, you will be exempt on any gain you make when you exercise the options. That is provided you do not exercise the share options within three years of receiving them. If you decide to participate in the scheme, you must enter into a savings contract. Your employer may offer you a three, five or seven-year savings contract. You can save between €12 and €500 per month. Your employer will deduct the savings amount from your net salary. Your savings are then placed on deposit with an approved bank or savings institution. If you decide to exercise your option at the end of the savings period, you will not have to pay Income Tax on any gain you make.

 

Unapproved Shares Scheme

These are essentially all other share option schemes which do not qualify as approved share option schemes. Any Income Tax which arises in respect of an Unapproved Share Option Scheme must be calculated and paid over to Revenue by you - the employee. Note being part of an Unapproved Scheme is not a negative thing, in fact if your employer wants to grant you options worth more than €12,700 they have to do it under an Unapproved Scheme. Read more about Unapproved Share Option Schemes and tax here

 

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.

 

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Date published 10 May 2022 | Last updated 2 May 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.