How Share Options are Taxed?
Your employer just handed you something about share options, and you have no idea what to do with it. That’s completely normal as this is often the first genuinely complicated tax question anyone runs into, and a lot of what’s written about it online is still describing a system that applied to pre-2024. Here’s what actually happens now, in plain terms.
What are share options?
A share option gives you the right to buy a set number of shares in your employer’s company at a fixed price, usually the market value on the day the option was granted. If the share price rises before you exercise the option, the gap between what you pay for the shares and what the shares are now worth is your gain.
Most employees are on what the Revenue call an unapproved share option scheme, which is what this guide covers. Revenue also recognises approved schemes with their own rules, including Approved Profit-Sharing Schemes, Save As You Earn schemes, and Employee Share Ownership Trusts. Your scheme documents (or your employer’s HR team) will tell you which one applies to you.
How is the gain taxed now?
Here’s the big change: since 1 January 2024, your employer handles this for you, automatically, through payroll.
Before then, exercising a share option meant filling in a form called RTSO1 and paying Revenue directly within 30 days, a step that caught a lot of people out. That system no longer applies to any options exercised from 1 January 2024 onwards.
Now, when you exercise your option, your employer works out the taxable gain and deducts Income Tax, USC and PRSI through your normal payroll, generally on the same day. You don’t need to file or pay anything yourself for this part, and exercising a share option no longer makes you a “chargeable person” under self-assessment on its own.
If your options were exercised before 1 January 2024, the old RTSO1 rules still apply to that gain, and it’s worth getting advice if that’s your situation.
A worked example
Say your employer grants you an option to buy 10,000 shares at €1 each which is the market value at the time.
A year later, the shares are worth €3 each, and you exercise the option: 10,000 shares bought for €10,000, but worth €30,000. That’s a paper gain of €20,000.
If you’re a higher-rate taxpayer, here’s what comes off that gain through your payroll:
- Income Tax at 40%: €8,000
- USC at 8%: €1,600
- PRSI at 4.2%: €840
- Total tax deducted: €10,440
Most employees have to sell at least some of the shares to fund that tax payments due and may end up keeping the remaining number of shares which they sell at a later stage. Lets assume for our example that 5,000 shares are sold immediately and the balance sold in six months time. This means two share sales for Capital Gains Tax ( CGT). The first one will be a no gain no loss situation for CGT.
Six months later, the shares are worth €4 each, and you sell all 5,000 for €20,000. These shares have a cost price of €3 each so cost for CGT = €15,000. A gain of €5,000 arises. This is taxed under CGT rules and if there are no other gains in the year the individual CGT annual exemption of €1,270 can be taken off the gain of €5,000 leaving €3,750 taxable at 33% = €1,237 due.
What about Capital Gains Tax?
The growth in value from the date you exercised the option to the date you sell is a capital gain, not income. It’s currently taxed at 33%, with an annual CGT exemption of €1,270 per person. See the example above.
Unlike the payroll deduction above, CGT isn’t collected automatically and calculating it, declaring it, and paying it is your responsibility under self-assessment rules . Our guide to CGT on shares walks through exactly how that calculation works.
See Also Capital gains tax calculator
Do I still need to file a tax return?
Exercising a share option no longer triggers a self-assessment obligation on its own. But you may still need to file a Form 11 or Form 12 if:
- You have Capital Gains Tax due from selling shares,
- You have other non-PAYE income (rental income, dividends, foreign deposit interest, freelance work) above the usual thresholds,
- You’re a proprietary director.
Our guide to self-assessment for PAYE earners covers exactly who this applies to.
The good news: since 2024, most of this happens automatically, and you don’t need to become a tax expert overnight to get it right. The part that’s still yours to sort (the CGT when you sell, and whether you need to file at all) is exactly the kind of first-time question FastTax.ie deals with every day.
