Share options vesting explained: how it works

In the UK, share options vesting is a common way for companies to reward employees for long-term performance.

A share option gives you the right to buy company shares at a fixed price, usually as part of your compensation package.

However, you don’t own those shares straight away. Instead, they become available to you over time through a process known as vesting.¹

In this guide, we explain how share option vesting works, the different types of vesting schedules, and how vesting fits into the broader tax picture.

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What does vesting mean in share options?

Vesting refers to the process by which your share options become available to exercise over time.

Although you may be granted all your options upfront, only the portion that has vested is actually available for you to use.

You can think of it like this:

• Granted options: a promise, subject to conditions such as staying with the company
• Vested options: options you’ve earned and can choose to exercise

If you leave before your options vest, the unvested portion is usually forfeited.¹

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Why do companies use vesting schedules?

Vesting schedules help companies balance reward, retention, and long-term incentives.

For startups and growth-stage companies, offering share options can help attract talent without relying solely on high salaries or immediate cash bonuses.

Vesting also encourages employees to stay with the company. For example, if your options vest over four years, you may be more likely to remain long enough to benefit from them.

Finally, vesting aligns employees with long-term company performance, rewarding sustained contribution rather than short-term results.²

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How does a share options vesting schedule work?

A vesting schedule sets out when and how your options become exercisable.

Most schedules follow a timeline where options vest gradually over months or years. Vesting may occur monthly, quarterly, or annually depending on the plan.

Many schedules also include a cliff period, where no options vest initially. After this period, vesting begins according to the agreed schedule.

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Common types of vesting schedules

One-year cliff with monthly vesting

No options vest during the first 12 months. After the cliff, a portion vests each month until the full grant is vested — often over four years.

Time-based vesting

Options vest gradually over time based solely on continued employment.

Performance-based vesting

Options vest when specific goals are achieved, such as revenue targets or company milestones.

Milestone-based vesting

A type of performance-based vesting tied to defined events like product launches or funding rounds.

Reverse vesting

Shares are issued upfront but may be forfeited if certain conditions are not met. This is more common for founders.³

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Summary of vesting types

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What happens when share options vest?

When your options vest, they become exercisable — meaning you can choose to buy the shares at the exercise price.⁵

However, vesting does not mean you automatically own shares.

You only become a shareholder once you exercise your options. At that point, you may:

• Sell the shares
• Hold them for potential growth
• Reinvest them

Until then, you typically won’t have shareholder rights such as voting or receiving dividends.

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What happens if you leave before options vest?

If you leave a company before your options vest, any unvested options are usually forfeited.

For vested options, what happens depends on your plan rules.

Many UK schemes offer a post-termination exercise window, often between 30 and 90 days. If you don’t exercise within this period, your options may expire.⁶

Plans may also distinguish between:

• Good leavers (e.g. redundancy, retirement)
• Bad leavers (e.g. dismissal for cause)

Good leavers may receive more favourable terms, such as longer exercise windows or continued vesting in some cases.¹

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How vesting affects tax and reporting

In the UK, vesting itself is not usually a taxable event.

Tax may arise later, depending on what you do next.

At exercise

When you exercise your options, the difference between the exercise price and the market value is usually treated as employment income.

• Subject to Income Tax (20%–45%)
• National Insurance contributions (NICs) may apply

At sale

If the shares increase in value after exercise, any additional gain may be subject to Capital Gains Tax (CGT).

• UK CGT allowance: £3,000 (2025/26)⁸

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Summary of tax stages

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If you receive proceeds in a foreign currency — for example from a US employer or brokerage — you may need to convert or transfer money internationally.

A Wise account lets you hold and convert multiple currencies using the mid-market exchange rate, with low and transparent fees.

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Managing share option proceeds with Wise

If you exercise and sell your shares, you may receive funds in a foreign currency such as USD.

With a Wise account, you can:

• Hold money in 40+ currencies
• Convert currencies at the mid-market exchange rate
• Avoid hidden foreign exchange markups
• Send and receive international payments easily

This can be useful if your income is international but your spending is in GBP.

➡️ Learn more about the Wise account

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FAQs about share options vesting

What does “vesting” mean for share options?

Vesting is the point at which you gain the right to exercise your share options. Until then, you cannot purchase the shares.

What types of vesting plans exist in the UK?

Common UK plans include Enterprise Management Incentives (EMI), Company Share Option Plans (CSOP), and Share Incentive Plans (SIP).⁹

How long does it take for options to vest?

Many plans vest over three to four years, often with a one-year cliff. Exact timelines depend on your employer.

What happens to unvested options if you leave?

Unvested options are typically forfeited when you leave the company, although some exceptions may apply.

Do vested options automatically become shares?

No. Vesting gives you the right to buy shares, but you must still exercise the options.

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Sources used:

1. Carta – Share Options in the UK
2. Hiive – Understanding startup equity
3. Carta – Vesting Guide
4. Capboard – Reverse Vesting Guide
5. Morgan Stanley at Work – Understanding Stock Options
6. Carta – What Happens When You Leave
7. Qapita – Stock Option Vesting Explained
8. GOV.UK – Capital Gains Tax Allowances
9. GOV.UK – Tax and Employee Share Schemes

Sources last checked: 26 February 2026