What does CSOP mean and how it works

Disclaimer: This information in this article is for general informational purposes only and does not constitute financial, tax, or legal advice. See full disclaimer.

There are lots of ways companies can attract talent and reward employees beyond an attractive salary. In the UK, many businesses offer benefits in the form of stock options, which grant workers shares under certain conditions.

There are a number of ways this kind of share option scheme can be structured, including a tax-advantaged Company Share Option Plan (CSOP).

Read on to find out what a CSOP is and how it works, along with the eligibility requirements, conditions and those all-important tax advantages.

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What is the CSOP scheme in the UK?

A Company Share Option Plan (CSOP) is a type of tax-advantaged share option scheme authorised by HM Revenue & Customs (HMRC) in the UK.

It allows UK companies to grant employees and founders the option to buy company shares at a set price in the future. A price is fixed at the start of the scheme, and the employee will be able to buy their shares at this set price in the future - regardless of the stock’s actual market value at that time.

The shares aren’t granted right away. Instead, there is a vesting period, during which a number of performance-related conditions need to be met. For example, overall company performance or an individual or departmental target reached.

The aim of CSOPs is to motivate and reward employees, with tax benefits for both the employee and the business - more on this later.

How does a CSOP work?

Here’s what a typical CSOP scheme looks like in practice:

1. The company sets up a CSOP scheme
2. It grants share options to employees, founders, full-time directors or anyone who meets a set criteria set by the business
3. The future purchase price is agreed upon, usually based on the current market value
4. A vesting schedule is outlined, which will be at least three years in order to qualify for tax relief. Performance-related targets and milestones may also be included in this.
5. Once the vesting period has elapsed, the employee can choose to exercise their stock options and buy the shares at the original fixed price.
6. The employee can then hold or sell the shares.

CSOP tax advantages

One of the reasons that CSOPs are so popular in the UK is down to their tax advantages.

Share options are exempt from income tax and National Insurance Contributions (NICs) when granted and exercised, provided certain conditions are met.¹

Similarly, the company may qualify for a corporate tax deduction equivalent to the amount of gain realised by their employees when they exercise their share options. Again, this is only if specific conditions are met.¹

The main condition is the time limit. Tax relief is only granted on CSOPs if options are exercised at least 3 years after the grant date, and no more than 10 years after.¹

There is also relief available under other conditions, such as if an employee leaves within 6 months for a ‘good leaver’ reason, or the employee passes away less than 12 months later.¹

It’s also worth noting that Capital Gains Tax (CGT) may be due on profits when the employee sells the shares, if the individual’s CGT annual exemption has been exceeded.

Tax can be extremely complicated, especially when it comes to investment instruments. So it’s strongly recommended to seek professional tax advice before entering into any transaction.

Benefits of CSOPs

Alongside the tax advantages, Company Share Option Plans also have other benefits for both employees and companies:

• Flexibility - the company has full control over how many options to grant and who gets them (they don’t have to be offered to all staff)
• No restriction on company size or sector, so any company can use CSOPs
• With performance-driven targets, rewards are tied directly to company success, in incentivising the whole company to pull together towards common goals
• No financial risk to employees, as share prices are fixed.

What are the qualifying conditions for CSOP?

In order to have a CSOP scheme and all its associated tax benefits, the following conditions must be met:²

• Share options can only be granted to UK employees or directors with a formal employment contract in place
• There are no working time requirements for employees, but directors need to work at least 25 hours per working week
• Individuals owning more than 30% of the company’s issued shares already don’t qualify for a CSOP
• The maximum value of CSOP options granted to each employee is £60,000 (based on the market value at the time of each grant).

Differences between CSOPs and other share option schemes

There are lots of different stock-related employee benefit schemes out there, from RSUs and ESOPs to incentive stock options.

One of the most similar to CSOPs are Enterprise Management Incentives (EMIs). EMIs are also an HMRC-backed scheme with tax advantages, but they are a little different. Here are the main differences between CSOPs and EMIS:

How Wise can save you money when receiving share sale proceeds internationally

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**Investments in funds are never guaranteed and your capital can be at risk. In the UK, Interest and Stocks are provided by Wise Assets — this is the trading name of Wise Assets UK Ltd, a subsidiary of Wise. Wise Assets UK Ltd is authorised as an investment firm and regulated by the Financial Conduct Authority (FCA). Our FCA number is 839689. We do not give investment advice, and you may be subject to pay tax. If you're not sure, seek qualified advice. You can find more information about the funds on our website.

Key takeaways

• A Company Share Option Plan (CSOP) is an HMRC-backed, tax-advantaged share scheme that allows UK companies to grant employees and directors the option to buy shares at a fixed price in the future.
• The purchase price is fixed at the start of the scheme, usually based on current market value, meaning the employee can buy the stock at this set rate regardless of how much its actual value increases.
• Share options are completely exempt from UK Income Tax and National Insurance Contributions (NICs) when granted and exercised, provided you hold and exercise them between 3 and 10 years from the original grant date.
• Companies face no restrictions on size or business sector to launch a CSOP, and they retain full discretionary flexibility over which specific employees or directors receive options.
• Individual limits cap the maximum market value of CSOP options granted to any single employee or founder at £60,000, calculated at the time of the grant.
• Qualifying conditions require participants to have a formal UK employment contract, block anyone owning more than 30% of the company from joining, and mandate that executive directors work at least 25 hours per week.

Sources used:

Sources last checked: 20-May-2026