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Taxation of employment related shares

Convertible securities

Your employer might award you a convertible security. A convertible security is a type of share or stock that can be converted into, or exchanged for, another type of share or stock. Securities are widely defined and can, for example, include:

  • shares
  • bonds
  • debentures
  • loan notes
  • and
  • options.

Taxation on the acquisition of convertible securities

You must pay Income Tax, Universal Social Charge (USC) and Pay Related Social Insurance (PRSI) on the acquisition of a convertible security. The amount you are taxed on depends on whether or not the convertible security is treated as a:

The right to convert the security is ignored when computing the charge to tax at the date you receive it.

If the convertible security is a share option and you exercised it before 1 January 2024 you must pay any tax to Revenue directly yourself.

If the convertible security is a share option exercised on or after 1 January 2024, your employer will deduct Income Tax through payroll. Information about how to report share options is available in Unapproved share option schemes.

If the security is not a share option, your employer will make the necessary deductions through payroll and pay the tax directly to the Collector-General.

Taxation on the occurrence of a 'chargeable event'

A gain may arise when a chargeable event occurs. You must pay Income Tax, USC and PRSI on this gain.

You are considered a 'chargeable person' in the year in which the chargeable event occurs. You must file an Income Tax Return for that year.

There are four types of chargeable events which may occur:

  1. The conversion of your convertible securities.
  2. The release of your entitlement to convert for consideration.
  3. The disposal of your securities while they are still convertible.
  4. The receipt of a benefit connected to your entitlement to convert.
  • Example 1 - conversion of convertible securities

    On 22 October 2021, Gerry was awarded 100 Ordinary-A shares free of charge, by his employer. The Ordinary-A shares are convertible into 100 Ordinary-B shares in three years.

    The market value of the Ordinary-A shares at the date of acquisition, ignoring the right of conversion, is €1,000.

    Gerry’s employer adds the amount chargeable to his pay, and Income Tax, USC and PRSI are applied. Gerry earns €90,000 each year, so he is liable to the higher rates of Income Tax and USC.

    Gerry’s tax on acquisition of convertible shares
    DescriptionAmount

    Market value of shares (ignoring right of conversion)

    €1,000

    Consideration paid by Gerry

    €0

    Amount chargeable

    €1,000

    Income Tax (40%)

    €400

    USC (8%)

    €80

    PRSI (4%)

    €40

    Total taxes

    €520

    On 22 October 2024, on conversion, Gerry received 100 Ordinary-B shares for a consideration of €100. The market value of the Ordinary-B shares on 22 October 2024 was €3,000.

    The market value of the Ordinary-A shares on 22 October 2024, ignoring the right of conversion, was €1,100.

    Gerry’s tax on conversion of convertible shares
    DescriptionAmount

    Market value of Ordinary-B shares

    €3,000

    Deduct market value of Ordinary-A shares (ignoring the right of conversion)

    €1,100

    Deduct consideration paid by Gerry

    €100

    Amount chargeable

    €1,800

    Income Tax (40%)

    €720

    USC (8%)

    €144

    PRSI (4.1%)

    €74

    Total taxes

    €938
  • Example 2 - release of entitlement to convert for consideration

    Bill is awarded Ordinary-A shares which have a right of conversion after 4 years, for nil consideration.

    The market value of the Ordinary-A shares at the date of acquisition, ignoring the right of conversion, is €1,000.

    Bill earns €28,000 each year, so he is liable to the lower rates of Income Tax and USC.

    Bill’s tax on acquisition of convertible shares
    DescriptionAmount

    Market value of shares (ignoring the right of conversion)

    €1,000

    Consideration paid by Bill

    €0

    Amount chargeable

    €1,000

    Income Tax (20%)

    €200

    USC (4.5%)

    €45

    PRSI (4.1%)

    €41

    Total taxes

    €286

    The right to convert the shares is released and Bill receives €5,000 in relation to the release.

    Bill’s tax on release of right of conversion
    DescriptionAmount

    Consideration received

    €5,000

    Consideration paid by Bill for release

    €0

    Amount chargeable

    €5,000

    Income Tax (20%)

    €1,000

    USC (4.5%)

    €225

    PRSI (4.1%)

    €205

    Total taxes

    €1,430
  • Example 3 - disposal of securities while they are still convertible

    Joe is awarded Ordinary-A shares, which have a right of conversion after five years, for nil consideration.

    The market value of the Ordinary-A shares at the date of acquisition, ignoring the right of conversion, is €1,000.

    Joe earns €85,000 per year, so he is liable to the higher rate of Income Tax and USC.

    Joe’s tax on acquisition of convertible shares
    DescriptionAmount

    Market value of shares (ignoring the right of conversion)

    €1,000

    Consideration paid by Joe

    €0

    Amount chargeable

    €1,000

    Income Tax (40%)

    €400

    USC (8%)

    €80

    PRSI (4.1%)

    €41

    Total taxes

    €521

    Joe sells the securities, while they are still convertible, after three years, for €3,000.

    The market value of the shares, ignoring the right of conversion, at the date of sale, is €1,100.

    Joe’s tax on disposal
    DescriptionAmount

    Consideration received

    €3,000

    Market value of shares (ignoring the right of conversion)

    €1,100

    Amount chargeable

    €1,900

    Income Tax (40%)

    €760

    USC (8%)

    €152

    PRSI (4.1%)

    €78

    Total taxes

    €990
  • Example 4 - receipt of benefit connected to the entitlement to convert

    The gain is the amount, or market value, of the benefit received in connection with the entitlement to convert. For example, the receipt of compensation for the loss of the entitlement.

    This is calculated in a similar manner to Example 2.

Capital Gains Tax (CGT)

If you dispose of your securities, you may be liable to CGT. You must report this disposal to Revenue, even if no tax is due. Your employer will not deduct any tax or report the disposal for you.

The amount you were chargeable to tax on is added to the cost of acquisition of the securities when calculating your chargeable gain.

Next: Employee Share Purchase Plans (ESPPs)

Published: 03 January 2025 Print this page

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