Company share option plan: the £60,000 CSOP limit and the three-year rule

A company share option plan is the scheme most often described second hand and wrong. Two things changed on 6 April 2023: the individual limit doubled, and one of the share requirements was deleted. If your plan rules still say £30,000, they describe the position for grants made before that date and nothing later.

This article covers the current limit and the date it changed, what happened to the share class restriction, the three-year rule and the exceptions on leaving, the tax and National Insurance position, the employer's corporation tax deduction, and the notification deadline that decides whether the plan is tax advantaged at all. It is general information about the position in the United Kingdom and it is not tax, legal or financial advice.

Who gets an option, and on what evidence, is the part a discretionary plan has to be able to defend. See how New Dynamics performance reviews keep the year's goals, ratings and written feedback attached to the cycle, so a selection decision is read off a record rather than reconstructed later.

What a company share option plan is

A company share option plan, usually shortened to CSOP, is a tax-advantaged share option scheme governed by Schedule 4 to the Income Tax (Earnings and Pensions) Act 2003. HMRC's ETASSUM41110 describes one as established by a company, providing for share options to be granted to employees and directors, not an SAYE option scheme, and compliant with Schedule 4. The same page gives the older names: "These schemes were previously known as discretionary share option plans or executive share option schemes until 1996."

The company grants an option to buy its shares at a price fixed at the start, which paragraph 22(1)(b) of Schedule 4 requires to be a price that "must not be manifestly less than the market value of shares of the same class" when the option is granted. If the shares rise and the option is exercised inside the statutory window, the gain is not taxed as employment income.

Eligibility is narrower than people expect. Paragraph 8 allows a grant only to a "full-time director or a qualifying employee" of the scheme organiser or, in a group scheme, a constituent company, and defines a qualifying employee as an employee who is not a director. Paragraph 9 excludes anyone with a material interest in a relevant close company, now or in the preceding 12 months.

The individual limit is £60,000, and it changed on 6 April 2023

Paragraph 6(1) of Schedule 4 requires the scheme to cap grants so that the "aggregate market value of the shares which the individual may acquire by exercising share options" under the scheme, or any other Schedule 4 CSOP scheme of the same organiser or an associated company, does not "exceed or further exceed £60,000".

The previous figure was £30,000. Section 16 of the Finance (No. 2) Act 2023, headed "CSOP schemes: share value limit and share class", directs that in paragraph 6(1) "for £30,000 substitute £60,000". Section 16(6) fixes the date: "The amendments made by subsection (2) have effect for the purposes of determining whether a share option may be granted to an individual on or after 6 April 2023 (the commencement day)."

The test applies at grant, so an option granted on or before 5 April 2023 was measured against £30,000 and stays measured against it. GOV.UK's page on the Company Share Option Plan carries both figures in one sentence: the plan "gives you the option to buy up to £60,000 worth of shares from 6 April 2023 (or £30,000 if the options were granted before 6 April 2023)".

Three details decide whether a grant fits. Options already exercised are "to be left out of account" under paragraph 6(2), so the limit measures live options only. Paragraph 6(3) values the shares as at the time the options were granted. Paragraph 6(4) says "the market value of shares subject to a restriction is to be determined as if they were not subject to the restriction".

An old rulebook does not block the higher figure: section 16(10)(a) gives a scheme notified before the commencement day effect with "the substitution of £60,000 for £30,000 in any provision required by paragraph 6". Paragraph 6(5), inserted by the same section, also lets the Treasury change the sum by regulations, so this is a figure to check rather than assume.

The share class restriction went at the same time

Section 16(4) is one line: "Omit paragraph 20 (requirements as to other shareholdings)."

Paragraph 20, as enacted, required that "The majority of the issued shares of the same class as the eligible shares must be" either employee-control shares or open market shares, "unless the eligible shares are shares in a company whose ordinary share capital consists of shares of one class only". In practice that blocked many private companies holding a separate class of shares for founders or investors.

The position now is that it does not apply. ETASSUM41110 records the switch in its own list of requirements: the nature of the shares is governed by "paragraphs 15 - 18 (paragraphs 15 - 20 for options granted and exercised prior to 6 April 2023)". The surviving tests are that the shares form part of the ordinary share capital of the scheme organiser or a company controlling it (paragraph 16), that they are a class listed on a recognised stock exchange, or shares in a company not under the control of another company, or shares in a company subject to an employee-ownership trust (paragraph 17), and that they are "fully paid up, and not redeemable" (paragraph 18).

Commencement here is wider than for the limit. Section 16(7) applies the repeal to options granted on or after 6 April 2023 and to "shares acquired by the exercise of share options on or after the commencement day (regardless of when those share options were granted)", so older options benefit when they are exercised.

It is discretionary, and that is a design decision

Unlike a Share Incentive Plan or a Save As You Earn scheme, a company share option plan need not be offered to everyone. ETASSUM41110 says so in one sentence: "Unlike SAYE option schemes, Schedule 4 CSOP schemes are not required to be open to all employees." HMRC's NIM06809 puts it from the other side: plans "are discretionary and allow a company to select the employees and directors it wishes to reward".

In practice that means selection has to be governed, because ETASSUM41120 states that "The decisions on who should be granted options should also be taken by the company which established the scheme", which makes a board or committee minute the right home for it. Performance conditions are expected rather than tolerated: the same page treats "The option/shareholder agreement and any schedule of performance conditions" as scheme documents HMRC will read. And discretion is why records matter, because rewarding some people and not others raises fairness questions an all-employee scheme never does. Our posts on bonus against incentive and employee incentive programmes cover the same problem in cash.

Grants in practice sit well below the ceiling. HMRC's Employee Share Schemes statistics commentary, published on 3 July 2026, reports that "In the tax year ending 2025, the average value of options per grant was £13,930 for EMI and £11,080 for CSOP", and that 20,650 companies operated tax-advantaged employee share schemes that year. For wider workforce figures, see our HR statistics hub.

The three-year rule, and the exceptions on leaving

The exemption sits in section 524 of ITEPA 2003: "No liability to income tax arises in respect of the exercise of the share option" if it is exercised in accordance with the scheme at a time when the scheme is a Schedule 4 CSOP scheme, Condition A or Condition B is met, and tax or National Insurance avoidance is not a main purpose of the arrangements.

Condition A is the three-year rule. The option must be exercised "on or after the third anniversary of the date on which it was granted, but not later than the tenth anniversary of that date". GOV.UK gives the same window plainly: buy the shares "between 3 and 10 years after being offered them" and there is no Income Tax or National Insurance on the difference between what you pay and what they are worth.

Condition B is the leaver route. Under section 524(2A) and (2B), an option exercised before the third anniversary still escapes the charge where the plan contains a paragraph 24 leaver provision and the individual has ceased qualifying employment because of one of the following, and exercises within six months of ceasing:

• injury, disability, redundancy or retirement;
• a "relevant transfer within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 2006";
• in a group scheme, the employing company "ceasing to be controlled by the scheme organiser".

The plan rules must contain that leaver provision, because the statute does not supply it. Note too that NIM06809 names only injury, disability, redundancy and retirement, which is narrower than section 524(2B) as amended by the Finance Act 2013, and still uses the word "approved" although ETASSUM41110 records that from 6 April 2014 "approval is no longer given". Where the manual and the statute differ, the statute governs. Separate provisions in section 524(2E) and paragraph 25 of Schedule 4 deal with cash takeovers and with death.

Tax on grant, exercise and sale

On grant, nothing. Section 475(1) of ITEPA 2003 says "No liability to income tax arises in respect of the acquisition of an employment-related securities option." That is subject to section 526, which charges tax where a CSOP option is granted at a discount.

On exercise, nothing if section 524 is satisfied. Where Condition A or B is met, the difference between the exercise price and market value on exercise is not employment income. Where neither is met, for example an exercise in year two by somebody who is not a good leaver, the ordinary employment-related securities charge applies to that difference.

On sale, Capital Gains Tax may apply. GOV.UK states: "You may have to pay Capital Gains Tax if you sell the shares." The gain runs from what was paid for them, so growth that escaped income tax on exercise is caught by the capital gains rules instead, subject to the annual exempt amount and the rates for the year of disposal. Our post on P11D reporting covers the separate year-end returns for benefits.

National Insurance

Where the exercise is exempt from income tax, no National Insurance arises on it either, and the mechanism explains the exception. NIM06809 states that shares acquired through a CSOP "are excluded from the meaning of asset by virtue of section 701 of the Income Tax (Earnings and Pensions) Act 2003 and therefore cannot fall within the meaning of readily convertible asset as defined in section 702 of ITEPA 2003 unless the option is exercised outside of the plan rules".

That carve-out fails on an early exercise. NIM06809 continues: "If the option is exercised before three years have elapsed from the date of grant ... a Class 1 NICs liability arises provided that the shares are readily convertible assets. The amount of earnings is the difference between the acquisition cost and market value of the shares acquired on the date of exercise. An income tax charge also arises on the same amount." For a listed company that is a real payroll liability on both sides, not a reporting footnote.

The corporation tax deduction for the employer

The employer's relief is separate from the employee's exemption and survives it. Part 12 of the Corporation Tax Act 2009 "provides for corporation tax relief in relation to employee share acquisitions", and Chapter 3 covers shares acquired under an option.

Section 1017 is the reason a CSOP exercise still qualifies. The condition is that the acquisition "is a chargeable event in relation to the employee for the purposes of section 476 of ITEPA 2003 (whether or not an amount counts as employment income of the employee because of that event)". The words in brackets do the work: the employee pays no income tax and the company still gets its deduction.

Section 1018(1) sets the amount as "the market value of the shares when they are acquired, less the total amount or value of any consideration given by any person in relation to the obtaining of the option or to the acquisition of the shares". Section 1021 sets the timing: "The relief is given for the accounting period in which the shares are acquired", as a deduction "in calculating the profits of the qualifying business for corporation tax purposes".

Self-certification and the 6 July deadline

There is no approval to wait for. ETASSUM41110 records that from 6 April 2014 the scheme organiser instead notifies the scheme to HMRC within a time limit and self certifies that it meets the Schedule 4 conditions.

ETASSUM41130 gives the deadline exactly: "Notice must be given by 6 July following the end of the tax year in which the first grant of options is made under the scheme. If notice is given after this date, the scheme can only be a Schedule 4 CSOP scheme from the tax year in which the notice is given (paragraph 28A(5))." The notice "must contain a declaration by the company secretary confirming that the Schedule 4 CSOP scheme meets the requirements of parts 2-6 of Schedule 4 at the time the notice is given".

Missing the date is not a filing penalty. It moves the start of tax-advantaged status to the tax year of the late notice, leaving grants made in the earlier year outside the exemption. Because the declaration must be true when given, ETASSUM41130 also warns that notice should come "prior to any event that might cause a scheme to cease to meet the statutory requirements", and uses an imminent takeover as its example.

How a company share option plan differs from EMI

Both grant market value options with no income tax on a qualifying exercise, and the choice usually turns on whether the company qualifies for Enterprise Management Incentives at all. On GOV.UK's EMI guidance, read on 7 November 2026, EMI is open to companies with "assets of £120 million or less" and "fewer than 500 full-time employees" (and, on or before 5 April 2026, £30 million and 250), it excludes activities including banking, farming, property development, the provision of legal services and ship building, and it gives "share options up to the value of £250,000 in a 3-year period". A CSOP has no company size test and no excluded activities list, but its individual ceiling is £60,000 and its exemption normally needs three years. EMI is the more generous scheme for companies that fit it; a CSOP is what remains available when they do not.

Frequently asked questions

What is the company share option plan limit?

£60,000 of market value, measured at the date of grant, across all live options the individual holds under the company's Schedule 4 CSOP schemes. Paragraph 6 of Schedule 4 to ITEPA 2003 sets it, and options already exercised drop out of the calculation.

When did the CSOP limit change from £30,000 to £60,000?

6 April 2023. Section 16(6) of the Finance (No. 2) Act 2023 applies the new figure to any option granted on or after that date. An option granted on or before 5 April 2023 was tested against £30,000, which is why GOV.UK still publishes both figures.

Does the share class restriction still apply?

No. Section 16(4) of the Finance (No. 2) Act 2023 omitted paragraph 20 of Schedule 4, the requirement that most shares of the class be employee-control or open market shares. The remaining share tests are paragraphs 16, 17 and 18.

Does a CSOP have to be offered to all employees?

No. HMRC states that unlike SAYE option schemes, Schedule 4 CSOP schemes are not required to be open to all employees, and its National Insurance Manual describes plans as discretionary. Eligibility is still limited to full-time directors and non-director employees without a material interest.

What happens if an option is exercised before three years?

The exemption in section 524 of ITEPA 2003 is lost unless the leaver route in Condition B applies. Without it, income tax is due on the difference between the exercise price and market value at exercise, and a Class 1 National Insurance liability arises too where the shares are readily convertible assets.

Can the employer still claim a corporation tax deduction?

Yes. Section 1017 of the Corporation Tax Act 2009 requires only that the acquisition be a chargeable event for section 476 purposes, "whether or not an amount counts as employment income of the employee because of that event". The deduction equals market value on acquisition less what was paid.

Your next step

1. Open the plan rules and find the limit. If they say £30,000, section 16(10) of the Finance (No. 2) Act 2023 already substitutes £60,000, so tidy the drafting at the next amendment rather than treating the deed as current.
2. Check whether paragraph 20 was the reason a grant was ruled out before April 2023. A separate share class that blocked the plan then does not block it now.
3. List every live option with its grant date and its market value at grant, and test the total against the ceiling for that date.
4. Diary 6 July after the tax year of a first grant, and file the notice before any event that could stop the company signing the declaration.
5. Write down who decides grants, on what evidence, and where the minute lives. Discretion is the scheme's advantage and its exposure.

For the policy wrapper around all of this, read and download our compensation policy guide. The guide is free to read, and the PDF uses our short download form.

Want grant decisions, performance conditions and the evidence behind them in one record instead of four inboxes? Book a New Dynamics demo and bring one live plan with you. You can also email contact@new-dynamics.com.