EMI Share Options UK 2026/27: Tax Benefits, Limits and How They Work

EMI Share Options in 2026/27: The UK's Most Tax-Efficient Employee Incentive

Enterprise Management Incentives (EMI) are widely regarded as the most tax-efficient way for UK small and medium-sized companies to incentivise employees with equity. The scheme allows companies to grant share options to key employees with minimal tax consequences at grant and exercise -- with Capital Gains Tax (rather than income tax) applying when shares are eventually sold.

If you work for a qualifying company and have been offered EMI options, this guide explains exactly how they work, what tax you will pay (and when), and why EMI is so valuable compared to other share schemes.

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What Is an EMI Option?

An EMI option gives an employee the right (but not the obligation) to buy a set number of shares in their employer company at a fixed price (the exercise price or strike price) at a future date.

The key benefits compared to receiving shares outright or through a non-approved scheme are:

1. No income tax at grant -- options are granted at a low or even nil tax cost
2. No income tax at exercise -- if the exercise price equals the market value at grant (agreed with HMRC), no income tax or NI arises when you actually buy the shares
3. CGT on disposal -- when you sell the shares, gains are subject to Capital Gains Tax (CGT), not income tax -- meaning a maximum rate of 24% rather than 45%
4. Business Asset Disposal Relief (BADR) eligible -- if conditions are met, CGT is reduced to just 10%

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EMI Limits in 2026/27

Per Employee Limit

An individual employee can hold unexercised EMI options with a total market value (at the time of grant) of up to £250,000.

This is a "snapshot" valuation -- the limit is applied at the time the options are granted, not at the time they are exercised. So if your £250,000 of options is worth £2 million when you exercise them, the limit has not been breached.

Company-Wide Limit

The total value of unexercised EMI options across all employees of the company cannot exceed £3 million at any point. Companies with multiple option grants must track this carefully.

Multiple Options

An employee can receive EMI options up to their £250,000 limit in multiple tranches and vesting schedules. Once the limit is reached, any further options must be granted under a different (usually less tax-efficient) scheme.

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Company Qualifying Conditions

Not all companies can grant EMI options. To be eligible, the company must:

1. Have gross assets of no more than £30 million (consolidated group assets if part of a group)
2. Have fewer than 250 full-time equivalent employees
3. Be independent -- not under the control of another company (not a subsidiary of a parent that owns more than 50%)
4. Carry on a qualifying trade -- the majority of the company's activities must not be excluded
5. Have a permanent UK establishment

Excluded Activities

The following trades cannot use EMI:

• Dealing in land, commodities, or futures
• Financial activities (banking, insurance, money lending)
• Leasing or letting assets
• Legal or accounting services
• Property development
• Farming and market gardening
• Ship operation

Technology companies, software businesses, manufacturers, and most professional services firms outside the excluded list can qualify.

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Employee Qualifying Conditions

Employees must also meet conditions to receive qualifying EMI options:

• Must be a bona fide employee or director of the qualifying company (or a qualifying subsidiary)
• Must work for the company for at least 25 hours per week OR spend at least 75% of their working time on the company's business
• Must not hold more than 30% of the ordinary share capital of the company at the time of grant
• Must not hold options over shares with a value of more than £250,000 (the per-employee limit)

Part-time workers who spend less than 25 hours per week can still qualify if the company is their main employment (the 75% working time test).

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The Tax Timeline: Grant, Vest, Exercise, Dispose

Step 1: Grant

The company grants EMI options to the employee. The company agrees a market valuation with HMRC (via the Share Valuation team at HMRC). This agreed value (AMV) is crucial -- it determines the no-tax-on-exercise position.

• Tax at grant: None, provided the scheme meets HMRC requirements and is properly notified

Step 2: Vesting

Options typically vest over a period (commonly 4 years with a 1-year cliff). Vesting is the point at which the employee earns the right to exercise. There is no tax at the vesting date itself.

Step 3: Exercise

The employee exercises their options -- paying the exercise price and receiving shares.

• If the exercise price = agreed market value at grant: no income tax, no NI
• If the exercise price < agreed market value at grant: the discount is subject to income tax and Class 1 NI as employment income

Most EMI schemes are designed to eliminate the exercise-price discount, ensuring no income tax at exercise.

Step 4: Disposal

When the employee eventually sells the shares, any gain over the exercise price (what they paid) is subject to Capital Gains Tax.

In 2026/27:

• CGT annual exempt amount: £3,000
• Basic rate CGT on shares: 18%
• Higher/additional rate CGT on shares: 24%

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Business Asset Disposal Relief on EMI Shares

Business Asset Disposal Relief (BADR) -- formerly Entrepreneurs Relief -- can reduce the CGT rate to 10% on gains from EMI shares, subject to conditions.

BADR Conditions for EMI Shares

1. The option must have been held for at least 2 years before disposal
2. The company must have been a qualifying EMI company throughout that 2-year period
3. The company must still qualify at the date of disposal (or until the company is sold/wound up)

BADR applies to the first £1 million of lifetime gains. This means an employee with £800,000 of gain on EMI shares pays CGT at just 10% = £80,000, rather than 24% = £192,000 -- a saving of £112,000.

The BADR lifetime limit has been significantly reduced over the years (it was £10 million until 2020). At £1 million, it still represents a very significant saving for the right employee.

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Practical Example: EMI Options from Grant to Sale

Emma is granted EMI options over 100,000 shares with an agreed market value of £1.00 per share. Exercise price is set at £1.00.

• Grant: No tax
• Vesting (4 years later): No tax
• Exercise (year 4): Emma pays £100,000 (100,000 shares x £1.00). No income tax because exercise price equals the AMV at grant. She now holds 100,000 shares.
• Sale (year 6 -- 2 years after exercise): Company is acquired at £12 per share. Emma receives £1,200,000. Her gain is £1,100,000 (sale proceeds minus exercise price paid).
• CGT with BADR: First £1,000,000 at 10% = £100,000 tax
• Remaining £100,000 gain: CGT at 24% = £24,000
• Total tax on the sale: £124,000
• Emma's net proceeds: £1,076,000

Compare this to receiving the same gain as a bonus:

• £1,100,000 bonus would be taxed at 45% income tax + 2% NI = approximately £517,000 in tax

EMI saved Emma approximately £393,000 in tax compared to a cash bonus structure.

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Notifying HMRC

Companies must notify HMRC of EMI option grants within 92 days of the grant date using the Employment Related Securities (ERS) online service. Missing this deadline means the options lose their EMI status and are treated as unapproved options -- with income tax applying at exercise.

Annual returns must also be filed by 6 July following the end of each tax year.

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Practical Planning Points

1. Get a valuation agreed before you grant -- HMRC Share Valuation turnaround can take several months; plan ahead for an imminent funding round or anticipated exit
2. Document everything -- the EMI agreement, the exercise schedule, and the HMRC agreed valuation letter
3. Watch the 2-year clock for BADR -- if an acquisition is imminent, check whether options have been held for 2 years
4. Employee mobility -- if an employee goes below the 25-hour/75% working time test (e.g., reduces to part-time), the EMI option may become "tainted" and lose its tax-advantaged status
5. Corporate events -- a change of control, share reorganisation, or takeover can trigger "disqualifying events" that affect the EMI status; take advice before any corporate restructuring

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EMI vs Other Share Schemes

EMI offers the best combination of limits, flexibility, and BADR eligibility for most growing companies.

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Summary

EMI share options are the gold standard for UK employee equity in 2026/27. The combination of no income tax at exercise and the potential for 10% CGT under BADR makes them dramatically more tax-efficient than cash bonuses or unapproved share options.

For employees offered EMI options, the key questions are:

• Is the exercise price set at the HMRC agreed market value?
• Has the company notified HMRC within 92 days?
• Have you held the option for 2 years before disposal (for BADR)?

Use our capital gains tax calculator to model the tax on your eventual share sale under different CGT rate scenarios.