Non-tax Advantaged Share Options (incl. LTIP and Phantom)
Non-tax advantaged share options (also known as unapproved or non-approved share options or equity plan) are share option schemes that do not qualify for special tax advantages. They offer maximum flexibility and can be tailored to suit your company’s needs, making them a useful alternative when tax-advantaged schemes (such as EMI or CSOP) are not available.
Like all other forms of share option, an unapproved share option is a right to acquire shares from a future date at a fixed price, normally the value of the shares the date the option is granted.
Key Features of Unapproved Options
- Flexibility – can be granted to select employees, non-executive directors, consultants or advisers.
- No statutory limits – unlike EMI or CSOP, there are no restrictions on company size, employee eligibility, or option value.
- Design freedom – you decide the terms, including performance conditions, vesting schedules, and leaver provisions.
Tax Treatment
- Employees are normally subject to income tax (and sometimes NICs) on the difference between the option exercise price and the market value of the shares at the time of exercise.
- Future gains are usually subject to capital gains tax when the shares are sold.
- Employer NICs may also apply, but companies can often structure arrangements so that this cost is passed to the employee.
Types of Unapproved Incentives
1. Discretionary Share Options
The simplest form of unapproved scheme. Employees receive options over shares, which they can exercise after a vesting period or on an exit event.
- Flexible – you set the terms.
- Equity participation – employees become shareholders once options are exercised.
2. Long-Term Incentive Plans (LTIPs)
A structured form of unapproved share scheme, typically rewarding employees with free shares if they achieve specified long-term performance conditions (often over 3–5 years).
- Equity-based – employees usually acquire real shares.
- Performance-driven – rewards linked to profit, growth or share price targets.
- Shareholder alignment – participants benefit directly from the company’s success.
3. Phantom Share Schemes
Not technically an option, but often grouped with unapproved incentives. Phantom shares give employees a contractual right to a cash bonus linked to growth in the company’s share value.
- No dilution – no new shares are issued.
- Cash-based – employees receive cash rather than shares.
- Highly flexible – easy to tailor for retention or performance.
Which is Right For You?
- Unapproved discretionary options – a straightforward way to offer equity when EMI or CSOP isn’t available.
- LTIPs – best if you want rewards tied to long-term company performance.
- Phantom shares – ideal if you want to mirror share ownership but avoid issuing shares.
Contact us for a free initial consultation to discuss which type of unapproved incentive will best support your business goals.