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If case law were followed, taxable earnings would arise only on the grant of an option, not on the subsequent exercise (Abbott v Philbin (39TC82), see ERSM110100). But specific legislation previously at ICTA88/S135 and, since 2003,聽in Chapter 5 Part 7 of ITEPA over rides the general rule in most cases.

The provisions of聽Chapter 5聽mean that聽there is usually no charge to Income Tax when an option is granted, and liability arises when it is exercised.

ITEPA03/S475 states that there is no liability to Income Tax on grant. The only occasion of charge on grant of an option is where the option was granted at a discount under an approved CSOP (ITEPA03/S475 (2)), or where options are granted to non-resident employees.

Until 5 April 2015 non-resident employees are not within the scope of Chapter 5 and therefore do not qualify for the exemption within Section 475, and may therefore be chargeable on grant of the option. See Chapter 3C of Part 7 for more on the taxation consequences for these employees - ERSM70000.

For options granted before 6 April 2008, see ERSM160200.

From 6 April 2015, with the removal of the residence exclusion at ITEPA03/S474 (see ERSM20300), Chapter 5 can apply to securities options acquired whilst the employee is not resident in the UK and not carrying out duties in relation to a UK employment. See ERSM162000.

Long options - pre-16 April 2003

Where an option was granted prior to 16 April 2003, a charge to income tax arose on the grant of an option if it lasted for 10 years or more. For one granted before 6 April 1998 a charge arose on the grant of an option if it lasted for 7 years or more. These were sometimes called 鈥渓ong options鈥� - see ERSM110200.