How are EMI share options taxed in the UK?

Full answer

Enterprise Management Incentive (EMI) is a tax-advantaged share option scheme for smaller, qualifying trading companies, designed to reward key employees. Tax treatment depends mainly on the grant price. If options are granted with an exercise price at or above the shares' market value at grant, there is normally no Income Tax or National Insurance when the employee exercises and acquires the shares. If granted at a discount to market value, the discount is charged to Income Tax (and possibly NI) on exercise. The main charge usually arises when shares are sold: the gain over the amount paid is subject to Capital Gains Tax. For 2026/27, CGT is 18% within the basic-rate band and 24% above it, after the GBP 3,000 annual exempt amount. Crucially, EMI shares can qualify for Business Asset Disposal Relief (BADR), giving an 18% CGT rate, and the normal two-year holding period can run from the date the option was granted rather than from exercise - a significant advantage. Worked example: an employee is granted an option to buy shares for GBP 5,000 (their market value at grant). Years later they exercise and immediately sell for GBP 50,000. There is no Income Tax on exercise; the GBP 45,000 gain (less the GBP 3,000 exemption) is taxed under CGT, potentially at 18% via BADR. Conditions are strict: the company must meet size and trade tests, options must be over qualifying shares, the value of options per employee and across the scheme is capped, and options must be exercised within 10 years. Notify HMRC of grants within the required window or the tax reliefs can be lost. Use the capital-gains-tax calculator to model a sale.

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