UK CSOP option outcome.
Net proceeds
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Gross gain
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CGT
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Your breakdown
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A tax-advantaged option, in plain terms
A Company Share Option Plan, or CSOP, gives an employee the right to buy company shares in future at a price fixed today, the strike price. The appeal is the tax treatment. With an ordinary unapproved option, the gain between the strike price and the market value at exercise is taxed as employment income, so Income Tax and National Insurance bite immediately, often at 40 percent or more. With a qualifying CSOP, that exercise gain escapes Income Tax and National Insurance entirely, and you are taxed only later, under Capital Gains Tax, when you sell the shares. This tool models that favourable path: no tax at exercise, Capital Gains Tax on the eventual disposal.
It suits employees of larger companies that cannot use the more generous EMI scheme, and anyone holding CSOP options who wants to see roughly what they will walk away with after tax. The single CGT rate box keeps it deliberately simple, so enter the rate that matches your situation, 18 percent if your gains sit in the basic-rate band, 24 percent if above it.
The three-year clock that protects the relief
The Income Tax break is not automatic. To qualify, the options must generally be exercised between three and ten years after they were granted. Exercise too early, outside that window, and the favourable treatment is lost: the exercise gain becomes employment income subject to Income Tax and National Insurance, exactly like an unapproved option. This three-year clock is the rule people most often trip over, particularly when a company is acquired and options are accelerated. Some takeover scenarios preserve the relief and some do not, so the timing around an exit deserves proper advice rather than assumption.
6,000 options at the £60,000 ceiling
Take the defaults: 6,000 options with a £10 strike, sold at £20 a share, and a 20 percent CGT rate. Notice the grant value, 6,000 shares at the £10 strike, comes to exactly £60,000, which is the maximum value of CSOP options any one individual can hold at grant. This example sits right at that cap.
The gross gain is £60,000. After the £3,000 annual exempt amount, £57,000 is taxable, and at 20 percent that is £11,400 of Capital Gains Tax, leaving £48,600 net. Crucially, not a penny of Income Tax or National Insurance was due on exercise, which is what separates a CSOP from an unapproved option and can save a higher earner well over £20,000 on a gain this size.
What capital gains tax takes at the end
Because the only tax in a qualifying CSOP is Capital Gains Tax on disposal, the size of your bill turns on your CGT rate and the annual exempt amount. The tool applies one flat rate to the gain above £3,000, which keeps the model clean, but in reality your gain stacks on top of your income and may straddle the 18 and 24 percent rates in the same way a crypto or share gain does. A useful tactic is to spread disposals across two tax years where you can, capturing two annual exempt amounts and potentially keeping more of the gain in the lower band. One mistake to avoid is forgetting that the cost base for CGT is the price you paid to exercise, the strike, not zero, so do not over-declare the gain.
How does a CSOP compare with EMI?
EMI is the more generous scheme but is reserved for smaller, qualifying companies, broadly those under £30 million of gross assets and fewer than 250 employees. Once a company outgrows EMI, CSOP is the main tax-advantaged alternative. The individual limit is £60,000 of options for CSOP against £250,000 for EMI, and the minimum holding period is three years for CSOP versus two for EMI. Both remove Income Tax at exercise, which is the headline benefit either way.
What if the share price falls below my strike?
Then the options are underwater and worthless to exercise, since you would be paying more than the shares are worth. There is no tax cost to letting them lapse, you simply do not exercise. A company can sometimes re-price or grant fresh options, but that is a board decision and subject to the scheme rules and HMRC conditions. The tool will show a zero or near-zero gain if you set the sale price below the strike, reflecting that there is nothing to tax.