Revenue Tax Briefing

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Revenue Tax Briefing Issue 31, April 1998

Share Schemes - Restricted Shares


Shares acquired by employees on the exercise of options/rights and under other employee share offer schemes may be subject to a restriction or clog where disposal is prohibited for a number of years. The focus of this article is on such shares and is based on current practice.

In it we outline Revenue’s:

  • View on the market value of such shares at the date of acquisition
  • Practice of abating the gain chargeable to income tax
  • View on the base cost for capital gains tax purposes.

Market value at date of acquisition

Two issues arise as to whether or not:

  • shares with a prohibition on sale, and
  • the same shares without a prohibition on sale

have the same market value for income tax purposes.

It is our view that a restriction on the sale of a share does not affect the market value of such a share.

Abatement of gain chargeable to income tax

Revenue recognises that a restriction on the sale of shares could be said to reduce the benefit acquired by the individual particularly, for example, where the individual would like to dispose of the shares immediately but is prohibited. Revenue are prepared, in cases where there is a genuine restriction, to allow the following % abatements on the gain chargeable to income tax:

No. of years of restriction on sale


1 Year


2 Years


3 Years


4 Years


5 Years


over 5 Years



Share offer granted/option exercised (short option*)


Subscription/exercise price


Market value at 1/3/98


Restriction on sale of share

3 years

Income Tax - 1997/98

Market Value


Price paid




Abatement (30%)


Amount chargeable to income tax


Base cost for Capital Gains Tax purposes

Where an income tax abatement is given the base cost for Capital Gains Tax purposes is as follows:

On the exercise of an option/right

  • Cost of the option/right, if any, and
  • Price paid for the shares on the exercise, and
  • Any amount charged to income tax* (Section 128(10) Taxes Consolidation Act 1997).

Under other employee share offers where the benefit is assessable

  • Price paid for the shares, and
  • Any amount charged to income tax*.

Alteration of terms

In cases where the original restriction on the sale of the shares is either removed or amended, the income tax charge will be amended to reflect such change. A similar adjustment will be made in cases where the shares are disposed of prior to the end of the clog period.


Companies wishing to avail of the abatement should contact their local Inspector of Taxes. Any alteration to the terms of the grant/award, as mentioned in the previous paragraph, should also be notified to the Inspector.

Details of:

  • All grants of options/rights, and
  • Allocations of shares under any options/rights

must be made to the Inspector not later than 30 days after the end of the tax year in accordance with Section 128(11) Taxes Consolidation Act 1997 on Form SO 2. Details of other share awards should be included in Form P11D in accordance with Section 897 Taxes Consolidation Act 1997


The prohibition on the disposal of shares must be for genuine commercial reasons and not simply used for the purpose of tax avoidance.The above practice will be subject to review and Revenue reserve the right to amend or withdraw it.


*Special rules apply to long options/rights i.e. those capable of being exercised later than 7 years from the date of grant. In such cases income tax is also chargeable at the date on which the option/right is granted. The amount chargeable at that date is the difference between the market value of the asset at the time the option/right is granted and the consideration for which the asset may be acquired. Any tax so charged can be deducted from any tax subsequently charged on the exercise, assignment or release of the option/right.

*This is the abated amount i.e. in the above example, ₤700. Indexation is available by reference to the date expenditure is incurred. Where an amount charged to income tax forms part of the cost that date is the date the tax is paid.