EMI Share Options UK 2026/27: The Complete Employee Guide

What are EMI share options?

Enterprise Management Incentives (EMI) is a UK government-approved employee share option scheme designed to help smaller, growing companies compete for talent against larger employers who can offer higher salaries.

Under an EMI scheme, you are granted the right to buy shares in your company at a price agreed today (the exercise price), at some point in the future. If the company grows, the shares become worth more -- and the difference between what you pay (the exercise price) and what the shares are worth when you sell them is your gain.

The reason EMI is so attractive is the tax treatment. Done correctly:

• No income tax or National Insurance at grant.
• No income tax or NI at exercise (if you exercise at or above the agreed market value).
• Capital Gains Tax at just 18% via BADR when you sell -- compared to up to 45% income tax and 2% NI on a cash bonus.

For a higher-rate employee receiving a £100,000 gain, that difference could be worth more than £20,000 in their pocket.

How EMI works: the four stages

Stage 1: Grant

The company's board formally grants you an EMI option. The key documents are:

• The option agreement -- sets out your exercise price, vesting schedule, and what happens if you leave.
• The company articles -- which govern your rights as a shareholder once you exercise.

Before the grant, the company's advisers will have agreed the Actual Market Value (AMV) with HMRC's Shares and Assets Valuation (SAV) team. This is the price HMRC considers the shares to be worth at the time of grant. Your exercise price can be set at or above AMV to ensure no income tax arises on exercise.

The company must notify HMRC of the grant within 92 days using the EMI1 online form via HMRC's Employment Related Securities (ERS) portal. If they miss this deadline, the option loses its EMI status entirely -- a costly mistake.

Stage 2: Vesting

Most EMI schemes use a vesting schedule -- the options "unlock" over time as you remain employed. A common structure is:

• 12-month cliff: nothing vests in the first year.
• Monthly or quarterly vesting thereafter over 3-4 years.

Vesting schedules are set in your option agreement. The company may also include performance conditions (e.g. revenue targets, exit events).

There is no tax event when options vest -- the clock starts ticking for the BADR 2-year holding period from the grant date (for options granted at AMV), not the vest date.

Stage 3: Exercise

When you exercise your options, you pay the exercise price to the company in exchange for shares. This is where many employees focus their attention -- but for EMI, provided your exercise price equals or exceeds the AMV agreed with HMRC at grant, there is no income tax or NI to pay at this point.

If the exercise price is below AMV (a discount), the discount is taxable as employment income at the time of exercise. This is sometimes done deliberately, but it erodes the tax advantage.

You receive the shares. You are now a shareholder, which may trigger certain rights (drag-along, pre-emption, information rights) depending on the company's articles.

Stage 4: Disposal

When you sell the shares -- typically at an exit (trade sale, IPO, or secondary) -- the gain from exercise price to sale price is subject to Capital Gains Tax.

For 2026/27:

Business Asset Disposal Relief (BADR) is critical. At 18%, it is available on lifetime gains up to £1 million (the BADR lifetime limit applies across all qualifying disposals). The 2-year clock for BADR starts from the date options were granted, not when they vest or are exercised, which is why early grant is important.

Note: BADR was 10% until April 2025, when it rose to 18%. The current rate of 18% applies for 2026/27.

Company qualifying conditions

Not every company can run an EMI scheme. The company must meet all of the following:

• Gross assets of no more than £30 million at the time of grant.
• Fewer than 250 full-time equivalent employees at the time of grant.
• Independent company -- not a 51%+ subsidiary of another company.
• UK-based -- must be UK-incorporated or have a UK permanent establishment.
• Trading company -- must carry on a qualifying trade. Excluded trades include:
  • Banking, insurance, moneylending, debt factoring.
  • Legal or accountancy services.
  • Property development and letting.
  • Farming and market gardening.
  • Hotels and nursing homes.
  • Energy generation (certain renewables).

If your company has moved beyond the thresholds, any future option grants will not be EMI -- but options already granted usually retain their EMI status.

Employee qualifying conditions

As an employee, you must:

• Work for the company (or a qualifying subsidiary) for at least 25 hours per week, or if less, at least 75% of your working time.
• Not hold more than a 30% material interest in the company before the grant.

The maximum value of unexercised EMI options you can hold at any time is £250,000, valued at the date of each grant. There is a company-wide maximum of £3 million of EMI options outstanding.

Filing: the EMI1 form

The company (not you) must complete the EMI1 notification within 92 days of each grant. This is done online through HMRC's ERS portal. The form captures:

• Details of the company and the scheme.
• Employee information.
• Number of shares, exercise price, and AMV.
• Whether the option is subject to performance conditions.

After this, the company has an annual obligation to file an ERS return by 6 July each year, reporting all option activity (grants, exercises, lapses, cancellations) during the tax year.

You do not file the EMI1 yourself. But it is worth confirming with your employer that they have done so -- ask for a copy of the EMI1 or confirmation of HMRC acceptance.

What happens if you leave?

Your option agreement will specify what happens to your options when employment ends. The standard tax rules:

• EMI options lapse unless exercised within 90 days of leaving employment.
• If exercised within 90 days, the BADR 2-year clock is preserved (assuming 2 years have passed since grant).
• If exercised after 90 days, the option may lose EMI tax-advantaged status and the gain on exercise becomes subject to income tax.

Most well-drafted option agreements include "good leaver" and "bad leaver" provisions:

• Good leaver (redundancy, death, ill health, retirement, company discretion): may retain a time-apportioned portion or all options, with an extended exercise window.
• Bad leaver (resignation, gross misconduct): options typically lapse immediately.

Always read your option agreement before deciding whether to resign.

EMI vs unapproved share options

Many companies grant "unapproved" share options outside any HMRC-approved scheme. Here's how they compare:

For a higher-rate employee with a £200,000 gain on exercise:

• EMI: approximately £36,000 CGT (BADR 18%).
• Unapproved: approximately £80,000 income tax + NI.

The difference of ~£44,000 shows why EMI is sought after.

CGT planning around EMI

A few key planning points:

Use your annual CGT allowance

In 2026/27, the CGT annual exempt amount is £3,000. If you are selling a modest number of shares, the allowance shelters the first £3,000 of gain.

For a married couple or civil partners, each has their own annual allowance -- potentially £6,000 tax-free if shares can be transferred to a spouse (bed-and-ISA is not available for EMI shares, but spousal transfers are possible for CGT purposes).

Timing the disposal

If you have a choice of tax year to sell in, consider whether deferring to the next tax year reduces your overall CGT (e.g. if you have losses to carry forward, or your income will be lower next year reducing the rate applying to gains).

BADR lifetime limit

BADR applies to lifetime qualifying gains up to £1 million across all disposals. If you have previously claimed BADR (on a business, property, or earlier EMI shares), the remaining lifetime allowance may be less than £1 million. Track this across your career.

ISA or pension after exit

Proceeds from an EMI share sale cannot go into an ISA or pension pre-tax, but once you have received the cash (net of CGT), you can reinvest into ISAs (up to £20,000 per year) or pension (up to your available Annual Allowance of £60,000 in 2026/27) to shelter future growth.

Common mistakes

1. Not checking the EMI1 was filed. If the company missed the 92-day deadline, the options are not EMI-qualifying. Ask for written confirmation.
2. Exercising too late after leaving. The 90-day window passes quickly. Calendar it.
3. Forgetting about BADR. You must actively claim BADR on your Self Assessment return in the year of disposal. It is not automatic.
4. Assuming all options vest at exit. Read the vesting schedule and acceleration provisions -- not all schemes fully accelerate on exit.
5. Ignoring the AMV issue. If your exercise price is below the AMV agreed at grant, the discount is taxable income.

Try the numbers

Sources

• HMRC: Enterprise Management Incentives
• HMRC: EMI notification and annual return
• HMRC: Business Asset Disposal Relief
• HMRC Shares and Assets Valuation: Agree the market value of your shares