How Does Redundancy Effect Your Company Shares?

Over the last few decades, employee share ownership has become a familiar part of working life in the UK. Many companies offer share options, share awards or savings-related schemes as a way of rewarding staff and encouraging a stake in the business. Tax-advantaged arrangements such as Save As You Earn (SAYE), Share Incentive Plans (SIPs), Company Share Option Plans (CSOPs) and Enterprise Management Incentives (EMI) have all helped to make this more common.

If you are facing redundancy and you hold shares or share options through your employer, it is worth understanding what happens to them when your employment ends. The answer depends on the type of scheme, the rules set out in the plan documents, and in some cases the reason for your departure.

If you are unsure where you stand more generally, you may want to start by checking your basic entitlements using our free Redundancy Rights Checker.

Share Options and Share Awards

A share option is a right to buy company shares at a fixed price on or after a specified date, often called the exercise or vesting date. If the market value of the shares on that date is higher than the agreed price, you can buy at the lower figure and either keep the shares or sell them on for a profit.

Share options are different from share awards, where shares are given to you outright (sometimes subject to conditions), and from shares bought through a partnership scheme such as a SIP. Redundancy treatment varies between these, so the label on your scheme matters.

What Happens on Redundancy?

In most schemes, your right to exercise unvested options lapses on the day your employment ends. However, redundancy is often treated as a "good leaver" reason under the scheme rules, which can change the outcome.

It is worth being cautious about that term. There is no fixed legal definition of a good leaver. Each scheme defines it in its own way, and the consequences flow from the precise wording in your plan documents. Some schemes list redundancy explicitly. Others leave it to the discretion of the board or remuneration committee, which means two employees in similar circumstances at different companies can end up with very different results.

Where redundancy does qualify as a good leaver event, typical provisions may allow you to:

• Keep some or all of your vested options and exercise them within a limited window after leaving, often six or twelve months.
• Retain a proportion of unvested options on a pro-rata basis, depending on how long you have been in the scheme.
• Exercise options early if the scheme rules permit it.

The first step is always to read the scheme rules and any option certificate or grant letter you were given. If you cannot find these, ask your HR department or the plan administrator for a copy.

Settlement Agreement Checker

Describe the settlement agreement you have been offered and get guidance on whether it is fair. Find out what you could negotiate for.

Try our Settlement Agreement Checker free, here on this site →

Tax-Advantaged Schemes

The main HMRC-approved schemes have their own rules on what counts as a good leaver and how options are treated.

• SAYE (Sharesave): If you are made redundant, you may be able to use the savings you have built up to buy shares at the option price, even if the three or five year savings period has not finished. Alternatively, you can take your savings back in cash.
• Share Incentive Plan (SIP): Redundancy is generally treated as a good leaver event. You can usually take your shares out of the plan, and in many cases this can be done without losing the income tax and National Insurance advantages, depending on how long the shares have been held.
• EMI options: Rules vary by company, but redundancy is commonly treated as a good leaver reason, allowing exercise within a set period after leaving. Watch the timing carefully: if EMI options are not exercised within 90 days of leaving, the favourable Capital Gains Tax treatment that EMI normally attracts can be lost on any growth in value after that date.
• CSOP: Similar good leaver provisions often apply, though you may have a limited window to exercise. The income tax advantage usually depends on the timing of exercise relative to the grant date and the reason for leaving.

For up to date information on the tax treatment of each scheme, refer to GOV.UK, as thresholds and allowances can change.

Your situation may be slightly different. ask a question below ↓ and our editorial team will reply with our advice.

Shares You Already Own, RSUs and LTIPs

If you already own shares outright, whether through a SIP, an exercised option, or simply by buying them, redundancy does not normally change the basic position. The shares usually remain yours, although there are some important exceptions to be aware of:

• Some private company schemes include "compulsory transfer" provisions, requiring leavers to sell their shares back, sometimes at a price set by the company or an independent valuer.
• Articles of association may also restrict what you can do with the shares once you leave.
• Selling private company shares can be difficult if there is no ready market.
• Capital Gains Tax may apply when you eventually sell, depending on the gain and your personal allowance.

Senior employees sometimes hold restricted stock units (RSUs) or awards under a long-term incentive plan (LTIP). These often vest over several years subject to performance or service conditions. On redundancy, the rules may allow vesting of a pro-rata portion of the award, continued vesting on the original timetable, or forfeiture of any unvested portion. RSUs are usually taxed as employment income on vesting, with PAYE and National Insurance applied through payroll, so the tax bill can land at an awkward moment if vesting is accelerated as part of your exit. The outcome depends on the specific plan documents and, sometimes, on what is negotiated as part of your settlement.

Practical Steps

If you are at risk of redundancy and hold shares or options, the most useful things you can do are:

• Ask HR or the plan administrator to confirm in writing exactly what will happen to your options and awards on the date employment ends.
• Note any deadlines for exercising options after leaving, particularly the 90 day window for EMI, and diary them carefully.
• Think about the timing of any sale. The annual Capital Gains Tax exempt amount may affect how much tax you pay, and spreading sales across tax years can sometimes help.
• Consider taking advice from a tax adviser or an independent financial adviser, particularly if the sums involved are significant or if you hold EMI options, RSUs or shares in a private company.

Share schemes are often complex, and the financial outcome can vary widely depending on the small print. Taking time to understand your position before your leaving date is usually time well spent.

The Next Step

Now that you have read through the advice above, you might want to put it into practice. Our Settlement Agreement Checker lets you describe the settlement agreement you have been offered and get guidance on whether it is fair. Find out what you could negotiate for. Try it now →