The option must be exercised within six months or, in the case of death, within twelve months. Options must normally lapse where the employee leaves the employment within three years, except in the circumstances described in the paragraph immediately above. Schemes can allow employees to exercise options within six months, if the part of the business where the employee works leaves the group or company operating the scheme. If the employment ends after three years, the scheme may allow the employee six months in which to exercise the options. Schemes may also allow employees to exercise options within six months after the bonus date if the employee remains employed by a company associated with the one that set up the scheme.
Schemes can provide for options to be exchanged where the granting company is taken over.
The shares must be fully paid, irredeemable and not subject to any restrictions. They must be quoted shares, or unquoted shares in a company not controlled by any other company, unless that other company is a quoted non-close company. A close company is basically one controlled by five or fewer people. No income tax liability arises on the grant of the option, or when the option is exercised, provided it is not exercised within three years of the option being granted. No tax is charged on any increase in the value of the shares between the date the option was granted and the date it was exercised.