UK Employee Share Schemes: SAYE, SIP, CSOP, EMI Compared — Limits, Tax Treatment, Holding Periods, Unapproved Options, RSU Treatment, Section 431 Election and Worked £20k Outcomes in 2026/27

Overview of the Four Schemes

The UK has four HMRC-approved tax-advantaged employee share schemes. SAYE and SIP are ALL-EMPLOYEE schemes — must be offered to all eligible employees on similar terms. CSOP and EMI are DISCRETIONARY — selective grant by the employer.

The four approved schemes share a common architecture: no IT on grant; favourable tax on exercise (zero or low IT depending on scheme rules); subsequent capital appreciation taxed as CGT not IT. Unapproved options sit outside this framework and are taxed as IT + NI on the exercise gain — typically 47-60% effective marginal rate for higher earners. The choice of scheme can affect take-home value by factor of 2-3x on the same gross equity grant.

SAYE / Sharesave

SAYE (Save As You Earn), marketed by most employers as Sharesave, is a 3 or 5-year savings contract combined with a share option. It is the most common approved scheme by number of UK employees — major FTSE companies (Tesco, Sainsbury, BT, Lloyds, NatWest, BAE Systems, Rolls-Royce) all operate SAYE programmes with high participation rates.

• Contract term — 3 years or 5 years (employee's choice at enrolment).
• Monthly savings — £5 minimum to £500 maximum per month, by salary deduction.
• Option price — set by the employer at plan launch, typically with up to 20% discount to current market price (maximum HMRC-permitted discount).
• Bonuses — historically the savings contract paid a tax-free bonus at maturity, but since December 2014 the bonus rate has been zero. Capital is preserved but no interest under current rules.
• Maturity decision — at end of contract, employee chooses: (a) use savings to exercise options and acquire shares at the discount price; or (b) take the cash back, no shares acquired.
• Tax on exercise — NO income tax on the discount. Acquisition cost for CGT = exercise price.
• CGT on sale — gain above exercise price is CGT (18% basic-rate band, 24% higher-rate band 2025/26).
• ISA transfer — within 90 days of exercise, employee can transfer shares into a Stocks & Shares ISA up to the annual £20k allowance; subsequent gains then fully tax-free.

SAYE is most valuable as an enforced savings discipline + tax- favoured equity exposure. Even in a flat share-price scenario, the 20% discount provides a guaranteed positive return (assuming exercise). Downside protection: the employee can walk away with the savings back if the share price falls below the discount price.

Share Incentive Plan (SIP)

SIP is an employer-run trust-based scheme combining up to four types of share acquisitions:

• Partnership shares — employee buys from GROSS salary up to £1,800/year (or 10% of salary if lower). Bought pre-tax pre-NI — equivalent to ~32% government boost for basic-rate or ~42% for higher-rate.
• Free shares — employer gives up to £3,600/year of shares free of charge. Allocation rules typically tie to performance or time.
• Matching shares — employer gives up to 2 free matching shares for each partnership share purchased. Up to £3,600/year of matching.
• Dividend shares — dividends paid on plan shares can be reinvested tax-free in additional shares.

Holding periods and tax outcomes at release:

• 5+ years — FULL IT/NI exemption on original acquisition value. No CGT if sold immediately on release (since CGT base cost = market value at release).
• 3-5 years — IT + NI on the LOWER of original cost or market value at release. Partial relief.
• Under 3 years — full IT + NI on market value at withdrawal. Worst outcome.
• ISA transfer — shares transferring to ISA within 90 days of release are tax-free thereafter.

SIP is most valuable for basic-rate employees who can commit to 5-year holding — the combination of pre-tax salary purchase, free shares, matching shares and full tax exemption on release delivers an effective ~32% government boost on equity savings. For higher-rate employees the boost is even better at ~42%. Practical risk: SIP shares are tied to a single employer — concentration risk. A SIP-heavy employee at a struggling employer may be holding a depreciating asset that is difficult to diversify.

Company Share Option Plan (CSOP)

CSOP is a discretionary share option scheme available to any UK employer (no SME restriction). Used widely by FTSE companies for senior management and middle management who fall outside EMI eligibility.

• Individual limit £60,000 — market value of options held under the plan at any one time. Doubled from £30,000 to £60,000 from 6 April 2023.
• Exercise price — must be at or above market value at grant. No discount allowed.
• Vesting — per plan rules. Common: 3-year cliff or 4-year graded with 1-year cliff.
• Tax on grant — none.
• Tax on exercise (3+ years from grant) — no income tax on the gain. Acquisition cost for CGT = exercise price.
• Tax on exercise (under 3 years) — full IT + NI on the gain (option-price-below-market). Same as unapproved.
• CGT on disposal — gain above exercise price taxed at 18%/24% residential CGT rates 2025/26.

The £60k limit was doubled in April 2023 to improve CSOP competitiveness with EMI for medium-sized non-SME companies. Practical use case: a £50k options grant to a senior manager at a FTSE 250 company sits comfortably within CSOP, delivers IT-free exercise on 3-year hold, and pays only 18-24% CGT on disposal. Without CSOP, the same £50k grant would be unapproved with 47-60% IT+NI on exercise.

Enterprise Management Incentive (EMI)

EMI is the most generous of the four approved schemes by individual limit and post-disposal tax treatment, but is restricted to SMEs.

• Eligible company — gross assets ≤£30 million; FT-equivalent employees ≤250; qualifying trade (excludes most financial services, property dealing, farming, hotels above certain size, and a defined excluded-activities list).
• Eligible employee — employed ≥25 hours/week OR ≥75% of working time; not a 30%+ shareholder (and 30% test includes spouse/civil partner / minor children).
• Individual limit £250,000 — market value of unexercised EMI options at grant. A single individual can hold £250k of EMI plus separately a CSOP of £60k.
• Company limit £3,000,000 — total market value of unexercised EMI options across all employees at any one time.
• Exercise price — typically at or above market value at grant (discount allowed but rare).
• Tax on grant — none.
• Tax on exercise — no IT or NI on the gain (assuming exercise price was at or above market at grant).
• CGT on disposal — 10% BADR rate if held 2+ years from grant AND disposal qualifies for BADR. 18%/24% standard CGT otherwise.

EMI is the gold standard for SME tech-startup equity compensation. The combination of £250k individual limit, no IT/NI on grant or exercise, and 10% BADR CGT delivers outcomes that no other UK scheme can match. A typical UK tech-startup early employee receiving £100k of EMI options that grow to £1m at company sale will pay ~£90k CGT (10% BADR after £3k allowance) vs ~£430k under unapproved treatment — a £340k saving on a single grant. The eligibility criteria (£30m gross assets, 250 employees) cap EMI to genuinely small businesses; once a startup grows beyond the threshold, subsequent grants must be CSOP or unapproved.

Unapproved Options

Unapproved (non-HMRC-approved) share options sit outside the four-scheme framework. Common use cases:

• Foreign-parented companies (US/EU/other) using a global option plan that does not match UK approved-scheme requirements;
• UK companies that have exhausted CSOP £60k individual limit for a senior executive;
• UK companies above EMI thresholds without an active CSOP scheme;
• Options granted to non-employees (consultants, advisers, contractors) — approved schemes are employment-only.

Tax treatment is materially worse than approved schemes:

• NO tax on grant.
• ON EXERCISE: full income tax + employee's NI (8% Class 1 above LEL/UEL bands) + employer's NI 13.8% on the exercise gain. Total effective rate often 47-60% for higher earners.
• Employer NI shift: many UK plans require employees to bear the employer's 13.8% NI cost via a NIC joint-election or shifting clause — pushing effective rates above 60%.
• ON SALE: CGT on gain above market value at exercise (not at grant).

Practical advice for unapproved option holders: (1) Sign a Section 431 election if the shares are restricted (within 14 days). (2) Time exercise carefully — exercising in a tax year when overall income is lower can save significant marginal-rate tax. (3) Consider exercise-and-hold vs exercise-and-sell trade-offs. (4) For foreign-parented company employees, watch the UK/US tax treaty interactions — double-taxation relief is available but mechanically complex. Specialist tax advice for senior packages is essential.

Restricted Stock Units (RSUs)

RSUs (Restricted Stock Units) are conditional rights to receive shares at a future vesting date. Common in US-parented company subsidiaries (Google, Meta, Microsoft, Amazon, Apple, etc.). RSUs are NOT options — there is no exercise price; the employee receives shares on vest at no cost to themselves.

UK tax treatment of RSUs:

• NO tax on grant.
• ON VEST: full IT + employee NI + employer NI on market value of shares delivered. Effectively taxed as a cash salary at vest market value.
• Sell-to-cover: most US-parented companies sell a proportion of vesting shares to cover the UK tax + NI cost at vest, delivering only the net shares to the employee.
• ON SUBSEQUENT SALE: CGT on gain above market value AT VEST. Standard CGT rates 18%/24%.
• Cross-border vesting: complex apportionment rules where the employee was non-UK resident at any point during the vesting period. UK taxable portion is generally pro-rata to UK days during the vesting window.
• Section 431 election: relevant where vested shares carry leaver provisions; 14-day deadline applies from vest date.

RSUs are functionally equivalent to a cash bonus paid in shares. They forfeit UK approved-scheme tax advantages — there is no UK statutory framework that maps directly to RSUs. Some UK employers structure RSUs as "phantom shares" (cash bonus tracking share price) or convert awards to CSOP/EMI grants where eligible. For US-parented UK employees the choice of RSU vs option vs SIP/SAYE participation is typically pre-decided by global compensation policy.

Section 431 Election (14-day deadline)

Section 431 election (ITEPA 2003 s431) is a critical UK tax election available for RESTRICTED SHARES — shares acquired under employment arrangements with restrictions on transfer, forfeiture conditions or leaver provisions.

Without a S431 election, the employee is taxed on UNRESTRICTED MARKET VALUE at acquisition (potentially reduced if restrictions are significant), AND further income tax arises when restrictions lift (the "restriction lift charge"). This can produce multiple IT charges over years as restrictions progressively fall away.

With a S431 election, the employee is taxed on the FULL UNRESTRICTED MARKET VALUE at acquisition (immediate, one-off), and no further income tax arises when restrictions lift. Any subsequent uplift in value falls in CGT, not IT — at lower rates.

14-DAY DEADLINE. The election must be made JOINTLY by employer and employee within 14 days of share acquisition. This is a hard statutory deadline — late elections are not accepted. The form (HMRC Section 431 joint election) is signed by employer and employee and retained by both — no filing with HMRC required, but must be produced if HMRC enquires.

Practical implication. Every employee receiving restricted shares should sign a S431 election within 14 days. Common triggering events: CSOP exercise of restricted shares; EMI exercise of restricted shares; RSU vest with leaver provisions; founder-share purchase with vesting. Most company secretaries provide a pre-completed form at acquisition. Missing the 14-day deadline can cost employees thousands in subsequent IT vs CGT differential — a £100k uplift taxed at 40% IT vs 24% CGT = £16k cost. For senior packages with multi-million-pound restricted awards the cost is correspondingly higher.

Good Leaver vs Bad Leaver

Most UK employee share schemes include leaver provisions determining what happens to unvested awards on departure.

• Good Leaver — typically death, disability, redundancy, retirement at agreed age, sale of the company, mutual termination. Good leavers usually: retain unvested awards (or accelerated vest); can exercise options after leaving for 6-12 months; benefit from continued favourable tax treatment.
• Bad Leaver — typically voluntary resignation, dismissal for cause, gross misconduct. Bad leavers usually: forfeit unvested awards entirely; may be required to sell vested shares back at acquisition cost or fair market value; lose favourable tax treatment.
• Intermediate Leaver — some plans define a middle category (e.g., voluntary resignation after long service) with partial retention.

The Good/Bad Leaver definitions are CRITICAL contract terms — for many employees the difference between Good and Bad leaver treatment on a £200k unvested option package can be the entire £200k. Common areas of dispute:

• Definition of "Cause" — drafted broadly by employers to capture conduct, performance and even non-compete breach. Employees should negotiate narrower definitions.
• Accelerated vesting on Change of Control — does company sale automatically vest unvested awards? Single-trigger vs double-trigger acceleration.
• Notice period treatment — does vesting continue during garden leave or PILON?
• Lookback periods — can the employer treat a recent voluntary resignation retrospectively as Bad Leaver if misconduct is later discovered?

For founders and senior executives, negotiation of leaver terms is a key part of the equity package. Specialist employment-and-equity legal advice essential for £100k+ packages. Employees should review leaver definitions BEFORE accepting an offer and BEFORE resigning; many employees forfeit significant value due to badly-timed resignations triggering bad-leaver treatment.

Worked £20k Comparison

Higher-rate (40%) employee, £20,000 of equity compensation across four schemes over 5 years, share price doubles from £10 to £20.

Comparing comparable £20k of exercise cost, EMI delivers the highest net (~£18.2k), CSOP slightly behind (~£16.5k), and unapproved roughly half (~£8.8-£11.6k). SAYE and SIP have different employee-cost profiles (lower out-of-pocket but capped) and are most valuable for all-employee participation and salary-sacrifice routing. Conclusion: the scheme structure matters enormously. Where the employer has a choice (EMI vs CSOP vs unapproved), choosing the most tax-favourable structure for the employee's circumstances can double or triple net take-home value.

Official References

• gov.uk: Tax and Employee Share Schemes
• HMRC: Employee share schemes — annual return
• HMRC: EMI overview
• HMRC: Employment-Related Securities Manual
• Legislation: ITEPA 2003 s431 (Section 431 election)
• gov.uk: Business Asset Disposal Relief