Taxation of employment related shares

Restricted shares

Your employer may place a restriction on when you can dispose of your shares. This can include shares you acquired on the exercise of a share option. These shares are known as restricted shares. Restricted share schemes are also sometimes referred to as 'clog schemes'.

If you have been awarded restricted shares, you are required to retain your shares for a fixed period of at least one year. You are not permitted to dispose of your shares during this period, except in limited circumstances (such as death or company reorganisation). You are deemed to have disposed of your shares if you:

sell them
transfer or pledge them to someone else
use them as a guarantee for a loan.

Taxation of restricted shares

Normally the amount chargeable to tax is the difference between:

the market value of the shares at the date of acquisition
and
the price (if any) paid by you.

You must pay Income Tax (IT), Universal Social Charge (USC) and Pay Related Social Insurance (PRSI) on the date of acquisition of the restricted shares.

To take account of the restriction placed on you from disposing of your shares, the amount chargeable to tax is reduced. The amount of the reduction is between 10% and 60% depending on the length of the restriction period.

Reduction of IT, USC and PRSI by length of clog period
Number of years of restriction	Amount of reduction
1	10%
2	20%
3	30%
4	40%
5	50%
More than 5 years	60%

Your employer will make the necessary deductions through payroll and pay the tax directly to the Collector-General.

Change or removal of restriction

The restriction may be changed or lifted before the end of the agreed restriction period. If this happens then the amount of IT, USC and PRSI you paid on the date the shares were awarded must be adjusted. The adjustment must take account of the actual period the restriction was in place. For example, if the restriction period is changed from four years to two years, the reduction rate changes from 40% to 20%.

You must inform Revenue of any additional IT, PRSI and USC due. You can contact Revenue:

through myEnquires in myAccount
by calling your local tax office.

Your employer will not make these adjustments through payroll. You can contact Revenue

Capital Gains Tax (CGT)

If you dispose of your shares, 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.

Example 1

Margaret was awarded 5,000 free shares by her employer on 1 January 2019. The market value of the shares at that time was €10,000 (€2 per share).

Under the terms of the award, the shares cannot be disposed of for a period of four years.

Margaret’s employer adds the value to her pay in the next payroll period. Margaret pays income tax at the higher rate of 40%.

Margaret’s tax on shares
Description	Calculation	Amount
Market value of shares		€10,000
Reduction given for 4 years (40%)	€10,000 x 0.4	€4,000
Amount chargeable	€10,000 – €4,000	€6,000
IT (40%)		€2,400
USC (8%)		€480
PRSI (4%)		€240
Total taxes		€3,120

If Margaret sells the shares after the restricted period for more than €10,000, she is liable to CGT.

Example 2

Jane was awarded 5,000 shares by her employer on 1 January 2019. The market value of the shares at that time was €15,000 (€3 per share). Jane paid €5,000 for the shares (€1 per share).

Under the terms of the award, the shares cannot be disposed of for a period of three years.

Jane’s employer adds the value to her pay in the next payroll period. Jane pays IT at the higher rate of 40%.

Jane’s tax on shares
Description	Calculation	Amount
Market value of shares		€15,000
Deduct amount paid by Employee	€15,000 - €10,000	€5,000
Original amount chargeable		€10,000
Reduction given for 3 years (30%)	€10,000 x 0.3	€3,000
Reduced amount chargeable	€10,000 – €3,000	€7,000
IT (40%)		€2,800
USC (8%)		€560
PRSI (4%)		€280
Total taxes		€3,640

Example 3

Andrew was awarded 5,000 free shares by his employer on 1 January 2018. The market value of the shares at 1 February 2018 was €10,000 (€2 per share).

Under the terms of the award, the shares cannot be disposed of for a period of five years and two months.

Andrew paid the higher rate of tax (40%) and USC at 8% in 2018.

Andrew’s tax on shares in January 2018
Description	Calculation	Amount
Market value of shares		€10,000
Reduction given for 5+ years (60%)	€10,000 x 0.6	€6,000
Amount chargeable	€10,000 – €6,000	€4,000
IT (40%)		€1,600
USC (8%)		€320
PRSI (4%)		€160
Total taxes		€2,080

The restriction on the disposal of the shares is lifted on 30 March 2020.

Andrew contacts his local Revenue office to advise that the restriction has been removed.

The revised amount of IT, USC and PRSI that should have been chargeable on acquisition is applied. Andrew must account for this amount directly to Revenue.

Andrew’s revision of tax on shares
Description	Calculation	Amount
Market value of shares		€10,000
Revised reduction given for 2 years (20%)	€10,000 x 0.2	€2,000
Amount chargeable	€10,000 – €2,000	€8,000
IT (40%)		€3,200
USC (8%)		€640
PRSI (4%)		€320
Total taxes		€4,160
Deduct taxes already paid		€2,080
Tax payable		€2,080

Next: Forfeitable shares

Published: 25 June 2021 Please rate how useful this page was to you Print this page

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Taxation of employment related shares

Restricted shares

Taxation of restricted shares

Change or removal of restriction

Capital Gains Tax (CGT)