What is an unapproved share option?
Answered 17 March 2026
Based on the retrieved sources, here is a comprehensive answer:
What is an Unapproved Share Option?
HMRC Guidance / Practice
An unapproved share option (also referred to as an unapproved scheme) is a share option granted to an employee under a scheme that does not qualify for the favourable tax and NICs advantages given to approved (tax-advantaged) schemes.
In contrast, certain employee share schemes may be approved by HMRC under specific statutory provisions. The approved (tax-advantaged) schemes are:
- Company Share Option Plans (CSOPs)
- SAYE share option schemes
- Enterprise Management Incentives (EMIs)
- Share Incentive Plans (SIPs)
Employees and directors receiving shares or options under these approved schemes may not be liable to certain Income Tax charges that would otherwise arise. The Capital Gains Tax position may also differ from that in unapproved schemes.
An unapproved share option is therefore simply any employment-related securities option that falls outside these statutory approved frameworks.
Tax Treatment of Unapproved Options
Where an employee is granted a right to acquire shares under an option plan that is not an HMRC-approved scheme, there will be a potential Income Tax charge under Part 7 Chapter 5 ITEPA 2003 when the option is exercised, assigned, or released.
A charge to tax may also arise on the grant of the option itself, but only if the option is capable of being exercised more than ten years after it was granted (a "long option").
The taxable gains from unapproved schemes include, among others:
- Gains where shares are acquired in pursuance of an employment-related securities option
- Payments received in exchange for transferring, cancelling, or releasing an option
- Gains where shares are acquired for less than market value
For Capital Gains Tax purposes, the acquisition cost of shares acquired on exercise of an unapproved option includes both the price paid for the shares and the amount that counts as income (i.e., the difference between the price paid and market value).
Citation sources
Where an employee is granted a right to acquire shares (an option) under an option plan that is not a scheme approved by HMRC, there will be a potential tax charge under Part 7 Chapter 5 ITEPA 2003 when the option is exercised, assigned or released. The legislation at Part 7 Chapter 5 ITEPA 2003 was amended by Schedule 22 FA 2003 with effect from 1 September 2003. The guidance below relates to share options exercised before 1 September 2003. For: securities options that are share options exercis
Certain employee share schemes may be approved by HMRC under specific statutory provisions. At the time of writing there are three types of approved share schemes and also the Enterprise Management Incentives. With all four, employees and directors who receive shares or share options under their provisions may not be liable to certain of the Income Tax charges under employment income that would otherwise arise. They are sometimes referred to as tax advantaged schemes. The Capital Gains Tax posit
This part of the manual gives detailed technical guidance on employee share schemes. You can also find further guidance in: the Employee Tax Advantaged Share Scheme User Manual the Employment Related Securities Manual If you are looking for a simple introduction to the main rules for employee share schemes, see Tax and Employee Share Schemes (GOV.UK). A common feature of employee share schemes is that employees may be offered shares, share options, or possibly other securities by reason of
This example illustrates the difference an election can make. On 30.11.11 an employee acquires 2400 shares under a CSOP and 1000 shares under an unapproved share option scheme. The employee actually pays £6 for each share. The market value of the shares at 30.11.11 is £12 per share. For Capital Gains Tax purposes the cost of the unapproved shares is the price paid together with the amount which counts as income, which in this case is the difference between the price paid and the market value (£1
Unapproved scheme A share award or share option scheme which does not qualify for favourable tax and NICs advantages given to approved schemes Underwater option A share option whose exercise price is higher than the current market value of the shares
erred to are those made where an employee or director receives shares or other securities (or an interest in shares or other securities) by reason of their employment, for free, below market value or is assisted in selling them above market value. The general rule is that such gains are taxable and included as employment income for tax credit purposes unless they’re covered by exemptions that are available under HMRC Approved Share Schemes. The following is a summary of the taxable gains and inc