Guide · Share Schemes
Company Share Option Plan (CSOP) 2026/27 -- Tax Rules, Limits and How to Set One Up
A Company Share Option Plan (CSOP) lets employers grant discretionary share options to employees with no income tax or National Insurance on the gain at exercise -- provided options are held for at least three years. The individual limit was doubled to £60,000 in April 2023, making CSOP a much more competitive tool for companies that cannot use EMI. This guide covers the tax rules, limits, self-certification and when CSOP beats other approved schemes.
Key figures at a glance -- 2026/27
- Individual option limit: £60,000 market value at grant
- Exercise price: must equal market value at date of grant
- Income tax / NI on exercise: nil (if held 3+ years from grant)
- CGT on sale: 18% (basic rate) / 24% (higher/additional rate)
- Annual Exempt Amount: £3,000
- BADR available: No
- HMRC approval: Self-certification via EMIS by 6 July
What is a CSOP?
A Company Share Option Plan is an HMRC-approved discretionary share option scheme governed by Schedule 4 of the Income Tax (Earnings and Pensions) Act 2003. The employer grants selected employees the right -- but not the obligation -- to buy shares in the company at a set price (the exercise price) at some future date.
Unlike all-employee schemes such as the Share Incentive Plan (SIP), CSOP is discretionary -- the employer chooses which employees receive options and how many. Unlike EMI (Enterprise Management Incentives), CSOP has no company-size or trade restrictions, making it the go-to approved scheme for larger or listed companies.
The key tax advantage is that if options are exercised at least three years (and no more than ten years) after the date of grant, the difference between the exercise price and the market value at exercise is entirely free of income tax and National Insurance. Only CGT applies when the shares are eventually sold.
The £60,000 individual limit
From April 2023, the individual limit for outstanding CSOP options doubled from £30,000 to £60,000 (measured by the market value of shares under option at the date of grant). This applies on a per-employee basis -- each employee can hold options over shares worth up to £60,000 at any time. There is no company-wide cap on the total number of options that can be outstanding.
The market value used is the value agreed with HMRC (or self-assessed with documentation) at the date of grant. If shares subsequently appreciate dramatically, the underlying gain can far exceed £60,000 and the full gain is still protected from income tax and NI -- the limit only applies at the point of granting, not at exercise or sale.
The exercise price rule
The exercise price must be at least equal to the market value of the shares at the date of grant. You cannot grant discount options under CSOP (unlike unapproved options, which can be granted at any price but attract full income tax and NI on the discount). This means that on the day of grant, the options are at-the-money or out-of-the-money -- all the financial benefit derives from future appreciation in the share price.
For private company shares, market value is agreed with HMRC Shares and Assets Valuation (SAV) or self-assessed using accepted valuation methods (discounted cash flow, net asset value, or comparable company multiples). A SAV clearance is optional but gives certainty; without it the company bears the risk that HMRC disputes the value on a later enquiry.
Tax treatment at each stage
The CSOP tax journey has three stages, each with different treatment:
1. At grant: No income tax, no NI, no CGT. The grant of the option is not a taxable event. There is no benefit-in-kind charge because the exercise price equals market value.
2. At exercise (3+ years from grant): No income tax, no NI. The employee pays the exercise price and acquires shares. The market value at exercise becomes the CGT base cost of the shares.
3. At sale: CGT on the difference between the sale proceeds and the base cost (market value at exercise). The £3,000 Annual Exempt Amount (AEA) is deducted first. CGT is charged at 18% (for gains within the basic-rate band) or 24% (for higher-rate taxpayers). BADR is not available for CSOP shares.
If options are exercised within three years of grant (without a qualifying early-exercise trigger such as redundancy, ill-health, retirement or a company takeover), the gain is taxed as employment income at marginal income tax rates, with employee and employer NI also applying. This wipes out most of the tax advantage.
Worked example: exercising after 3 years
In 2023, Alex is granted options over 20,000 shares at an exercise price of 50p (market value at grant = 50p). In 2026, the shares are worth £2.50. Alex exercises all options and immediately sells the shares.
- Sale proceeds: 20,000 x £2.50 = £50,000
- Exercise cost: 20,000 x £0.50 = £10,000
- CGT gain: £50,000 - £10,000 = £40,000
- Less AEA: £40,000 - £3,000 = £37,000 taxable gain
- CGT at higher rate (24%): £37,000 x 24% = £8,880
- Net proceeds: £50,000 - £10,000 - £8,880 = £31,120
Had Alex's options been unapproved options, the entire £40,000 gain at exercise would have been charged to income tax and NI -- potentially £17,400+ more tax. The CSOP saving is substantial.
Setting up a CSOP: self-certification
CSOP schemes no longer require advance HMRC approval. The process is:
- Draft option agreements and plan rules that comply with Schedule 4 ITEPA 2003.
- Agree (or self-assess) the market value of shares for the grant.
- Grant options to selected employees at the agreed exercise price.
- Register the scheme via HMRC's EMIS (Employment Related Securities) online service.
- Submit an annual return by 6 July following the end of the tax year in which options were first granted, and every subsequent year.
HMRC will not proactively review the scheme documentation but may raise an enquiry -- particularly when options are exercised -- at which point the company must be able to demonstrate compliance. Legal advice on scheme documentation is strongly recommended.
Qualifying company conditions
CSOP has no size restrictions. Any company can operate a CSOP provided:
- It is a trading company or the holding company of a trading group.
- It is not a 51% subsidiary of another company (subject to anti-avoidance carve-outs for group schemes).
- Its shares (or shares of the parent) are included in the scheme.
Unlike EMI, there are no gross asset limits, no employee headcount limits, and no trade exclusions. Property investment companies, banks and professional services firms that cannot access EMI can all use CSOP.
CSOP versus EMI: choosing the right scheme
EMI (Enterprise Management Incentives) is generally the preferred approved option scheme for qualifying companies because it offers higher individual limits (£250,000 per employee, £3m total), Business Asset Disposal Relief at 18% CGT on qualifying exits, and greater flexibility. However, EMI is only available when:
- The company has fewer than 250 full-time-equivalent employees
- Gross assets do not exceed £30 million
- The company is not majority-owned by another company
- The company is not in an excluded trade (property development, banking, insurance, legal and accountancy services, farming, hotels, nursing homes, ship-building, and others)
When any of these conditions are not met, CSOP becomes the best available approved scheme. The absence of BADR is the main disadvantage -- CGT at 18%/24% versus potentially 18% under EMI-plus-BADR can be meaningful on large gains. However, the income tax and NI exemption at exercise still delivers a very significant saving versus unapproved options.