What is a company share option plan?
Answered 11 March 2026
A Company Share Option Plan (CSOP) is a tax-advantaged, discretionary employee share option scheme. Here is a structured summary:
What the law says
A CSOP scheme is defined in statute as a scheme (commonly referred to as a company share option plan) which:
- is established by a company,
- provides for share options to be granted to employees and directors, and
- is not an SAYE option scheme.
A share option means a right to acquire shares in a company.
Chapter 8 of Part 7 of ITEPA 2003 provides:
- exemptions from income tax in connection with share options granted under CSOP schemes which are Schedule 4 CSOP schemes, and
- for amounts to count as employment income in certain circumstances in connection with such options.
The CSOP code consists of the relevant sections of ITEPA 2003, Schedule 4 to ITEPA 2003, and Part 3 of Schedule 7D to TCGA 1992.
No liability to income tax arises in respect of the exercise of a share option if the individual exercises it in accordance with the provisions of the CSOP scheme at a time when the scheme is a Schedule 4 CSOP scheme.
HMRC guidance / practice
HMRC describes a CSOP as a tax-advantaged discretionary share option scheme meeting the requirements of Schedule 4, ITEPA 2003.
Key features, as described by HMRC, include:
- Discretionary: The company selects which employees and directors it wishes to reward.
- Mechanics: The company grants eligible employees or directors an option to purchase company shares in the future at a price set on the date of grant.
- Tax advantages: There are income tax and NIC advantages on gains arising from the acquisition of shares awarded through an approved CSOP.
- Option limit: The value of shares under option must not exceed £60,000 (this limit was £30,000 for options granted prior to 6 April 2023).
- Exercise window: There must be a minimum of 3 years and maximum of 10 years between the grant and exercise of an option to obtain the full income tax and NIC relief.
- Early exercise: If the option is exercised before three years have elapsed from grant, a Class 1 NICs liability and income tax charge arise on the difference between the acquisition cost and market value of the shares.
- Purpose of tax advantages: The tax advantages are only concerned with removing tax obstacles which may discourage employees and directors from acquiring shares.
Citation sources
Part 7 Employment income: income and exemptions relating to securities Chapter 8 ... CSOP schemes Introduction ... CSOP schemes 521 1 This Chapter provides— a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b for exemptions from income tax in connection with share options granted under CSOP schemes which are Schedule 4 CSOP schemes, and c for amounts to count as employment income in certain circumstances in connection with such options. 2 . . . . . . . . . . . . . . . . . . . . .
The tax advantages of a Schedule 4 CSOP scheme are only concerned with removing tax obstacles which may discourage employees and directors from acquiring shares. Section 476 liability on share option gains resulting from situations in which shares are not acquired (i.e. gains realised other than by acquiring the shares), applies whether the options are granted under a “Schedule 4 CSOP schemes” or “non-tax advantaged CSOP schemes”. Income tax liability under Section 476 arises on share option gai
The individual limit includes the value of any Schedule 4 Company Share Option Plan (CSOP) options granted by the employing company and any companies that are members of the same group of companies. A Schedule 4 CSOP option is an option to acquire shares granted under a scheme that meets the requirements of Schedule 4 ITEPA and the maximum value of shares which may be subject to a Schedule 4 CSOP option is £60,000, this limit was £30,000 for CSOP options granted prior to 6 April 2023 (see ETASSU
Company Share Option Plans (CSOPs) are discretionary and allow a company to select the employees and directors it wishes to reward. The company grants eligible employees or directors an option to purchase company shares in the future at a price set on the date of grant. There are income tax and NIC advantages on the gains arising from the acquisition of shares awarded through an approved CSOP. The value of the option on the date of grant must not exceed £30,000. Any shares acquired by an employe
Company Share Option Plan (CSOP) Tax-advantaged discretionary share option scheme meeting the requirements of Schedule 4, ITEPA 2003 Conditional share award An award of a number of shares of which the employee will become the owner at a future date if specified conditions are met