Underwater meaning

The aim of this note is to set out the principal areas in which parallel options are commonly useful, how they interact with other share incentive arrangements, HMRC’s acceptance of such plans and the practical considerations around implementation. The main application of parallel options is either to add tax efficiency to an unapproved share incentive arrangement or to address issues within existing arrangements such as underwater options. Practitioners should exercise particular care when putting in place parallel options that involve a tax-advantaged scheme such as an enterprise management incentives (EMI) scheme or a company share option plan (CSOP). The key points are highlighted below (together with HMRC’s published views). What are parallel options? Parallel options are employee share option arrangements that are linked to another employee share incentive scheme. They will typically be introduced either to enhance another share plan, eg deliver tax efficiency, or to help ‘fix’ problems with the main incentive scheme, eg where options are underwater. They can relate to either phantom options or options...

FORTHCOMING CHANGE: After the 2020 call for evidence, the 2021 outcome, scrutiny by the relevant HMRC and industry working group, and a 2023 consultation, the government stated in its consultation outcome on 28 April 2025 that, from 2027, it plans to replace stamp duty and SDRT with a single self-assessed stamp tax on securities, broadly in line with the 2023 consultation proposals. As further confirmed in Budget 2025 on 26 November 2025, this unified tax—called the Securities Transfer Charge—will be self-assessed and paid (and reported) via a new online portal. For more information, see News Analyses: Tax update spring 2025—Stamp taxes on shares modernisation Tax update spring 2025—Tax analysis—Stamp and transfer taxes TAMD 2023—Stamp taxes on shares modernisation TAMD 2023—consultation—stamp taxes on shares Tax Administration and Maintenance Day—27 April 2023—Stamp and transfer taxes Budget 2025—Tax analysis Significance of the target company's share incentive arrangements in the event of a transaction A prospective buyer will usually aim...

What is share dilution? Share dilution arises when a company issues more of its own shares. As a result, the proportion owned by existing shareholders falls when the new shares are created. Example of share dilution A small business has 100 shares in issue. Ten shareholders each hold ten shares, so each owns 10% of the company. The following year, the company issues another ten shares to a different party (for example, directly to a single investor or to satisfy an option that a share plan participant has exercised over ten shares). There are now 110 shares in issue, and there are 11 shareholders each holding ten shares. Those ten shares now account for 9% of the company. In this way, by issuing an extra ten shares, the original shareholders are each diluted from 10% to 9%. How do shares cause dilution? Dilution of existing shareholders can occur in various situations. A typical cause linked to employees’ share schemes includes: options being...