Answers · UK 2025/26
How is the gain from exercising an EMI share option taxed?
Enterprise Management Incentive (EMI) options are highly tax-advantaged. On exercise, no income tax or NI applies if the option was granted at or above market value. The gain from exercise price to sale price is taxed as a capital gain at 10% (Business Asset Disposal Relief), subject to conditions.
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**What is an EMI option?** An Enterprise Management Incentive (EMI) option is a government-approved employee share option scheme available to qualifying companies (broadly: trading companies with gross assets under £30m and fewer than 250 employees). EMI options are the most tax-efficient UK share option scheme. **Tax treatment at each stage** **1. Grant** No tax at grant, even if the option is granted below market value (though granting below market value triggers income tax on the discount at exercise — see below). **2. Exercise** If the option was granted at or above the agreed market value: - No income tax on exercise - No NI (employee or employer) on exercise If granted below market value (discount agreed with HMRC Shares Valuation): - Income tax on the discount only **3. Sale of shares** The gain from the exercise price to the sale price is a capital gain: - EMI shares held from the grant date qualify for Business Asset Disposal Relief (BADR) at 10% CGT (subject to lifetime limit of £1,000,000 in gains and qualifying conditions) - From October 2024, BADR rate increased to 14% (2025/26) and 18% (2026/27 — aligning with lower CGT rate) — confirm current rate **Example: Sarah, exercising EMI options in 2026** Sarah was granted 10,000 EMI options at 50p each (market value at grant). She exercises when shares are worth £3 each. - Exercise: pays 10,000 × £0.50 = £5,000; no income tax or NI - She sells immediately at £3: proceeds = £30,000 - Capital gain: £30,000 − £5,000 = £25,000 - Less annual exempt amount: £25,000 − £3,000 = £22,000 taxable - BADR at 18% (2026/27 estimated): £22,000 × 18% = £3,960 CGT Without EMI status, the same gain might trigger income tax at 40–45% on exercise (£25,000 × 40% = £10,000). **Key conditions** - Company must qualify as an EMI company throughout - Options must be exercised within 10 years of grant - Employee must work at least 25 hours/week or 75% of working time for the company - BADR requires options to have been held at least 2 years from grant date
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.