Income Tax (Earnings and Pensions) Act 2003

Maximum entitlement of employee: financial limit on unexercised options

5 (1) An employee may not hold unexercised qualifying options which—

(a) are in respect of shares with a total value of more than £100,000, and

(b) were granted by reason of the employee’s employment—

(i) with one company, or

(ii) with two or more companies which are members of the same group of companies.

(2) A share option cannot be a qualifying option if the limit in sub-paragraph (1) is already exceeded at the time when it is granted.

(3) If the grant of a share option causes that limit to be exceeded, the option cannot be a qualifying option so far as it relates to the excess.

(4) Where, at the time when a share option is granted to an employee (“E”), E holds unexercised CSOP options granted by reason of E’s employment—

(a) with the employer company, or

(b) if it is a member of a group of companies, with any member of that group,

those options are to be treated for the purposes of this paragraph as if they were unexercised qualifying options.

(5) A “CSOP option” is an option to acquire shares under a scheme approved under Schedule 4 (CSOP schemes).

(6) For the purposes of this paragraph—

(a) “the value” of shares in respect of which a particular share option is or has been granted means the market value, at the time when the option is or was granted, of issued shares of the same class as those that may be acquired by exercise of the option; and

(b) a share option is to be treated as granted in respect of the maximum number of shares that may be acquired under it.

(7) For the purposes of this paragraph the market value of shares subject to restrictions or risk of forfeiture is to be determined as if there were no such restriction or risk.

(8) Shares are “subject to risk of forfeiture” if the interest that may be acquired is only conditional within the meaning of section 424 (conditional interests in shares).