How are employee share options taxed?
You are chargeable to income tax in the tax year in which you exercise the option (i.e., the year you take up the option by acquiring the shares). In many cases, this will be the same time as you sell the shares, as you will exercise the option in order to sell the shares.
If you are genuinely prevented from selling the shares once the option has been exercised, Revenue allow the gain to be abated as follows:
(a) by 10%, where the restriction is for one year,
(b) by 20%, where the restriction is for two years,
(c) by 30%, where the restriction is for three years,
(d) by 40%, where the restriction is for four years,
(e) by 50%, where the restriction is for five years,
(f) by 60%, where the restriction is for more than five years.
Revenue do not accept that the prohibition on the sale of shares affects the market value of the shares. For capital gains tax purposes, the base cost of the shares is the total of:
(a) the price you pay for the option if any,
(b) the price you pay for the shares on the exercise of the option, and
(c) any other amount chargeable to income tax.