UK EMI option net of tax.
Net proceeds (after CGT)
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Gross gain
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CGT (18% BADR)
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Why EMI is the gold standard for share options
Enterprise Management Incentives are the most tax-favoured way a smaller UK company can give its people a stake in the upside. The reason they beat ordinary share options is simple: if the options are granted with a strike price at or above the shares' market value on the grant date, there is no income tax and no National Insurance when you exercise. The whole gain is left to be taxed under capital gains tax on the eventual sale, which is almost always cheaper than income tax. This calculator models that clean path, taking your option count, strike price, and exit price to the net cash after CGT.
The capital gains rate that applies depends on whether you qualify for Business Asset Disposal Relief. For EMI shares the qualifying period runs from the grant of the option, and BADR gives a reduced rate that, for 2026/27, is 18 percent, up from 14 percent in 2025/26 and 10 percent before that. The relief carries a lifetime cap of £1 million of gains. Above that, or without BADR, the standard residential-style CGT rates of 18 and 24 percent apply.
From a 10p strike to a £10 exit
Take an early employee granted options over 50,000 shares at a 10 pence strike, who sells at £10 a share after a successful exit. The cost of acquiring the shares is the strike paid, £5,000, and the proceeds are £500,000, so the gain is £495,000. The annual exempt amount of £3,000 comes off, leaving £492,000 taxable. At the 18 percent BADR rate that is £88,560 of capital gains tax.
| Step | Amount |
|---|---|
| Sale proceeds (50,000 at £10) | £500,000 |
| Cost to exercise (50,000 at £0.10) | £5,000 |
| Gross gain | £495,000 |
| Less annual exempt amount | £3,000 |
| CGT at 18% BADR on £492,000 | £88,560 |
| Net proceeds after tax | £406,440 |
The chart shows where the half-million of proceeds lands. The overwhelming majority stays with the employee; the tax slice is real but modest by the standards of income tax on the same sum.
The qualifying conditions that decide your rate
Two things commonly go wrong. First, the strike price. If the options were granted at a discount to market value, the discount is taxed as employment income at exercise, and only the growth above that point gets capital treatment, so insist on a proper HMRC-agreed valuation at grant. Second, the holding period. BADR on EMI shares requires the options to have been held for at least two years from grant, with no minimum shareholding percentage, which is more generous than the usual BADR rules. Exercise and sell inside two years and you lose the relief, paying 18 or 24 percent standard CGT instead.
What if my company does not qualify for EMI?
EMI is limited to companies with fewer than 250 full-time-equivalent employees and gross assets under £30 million, carrying on a qualifying trade. Larger companies often use the Company Share Option Plan instead, which has its own tax advantages but a lower individual limit. Unapproved options are taxed as income at exercise, which is why a growing startup should set up an EMI scheme while it still qualifies.
Is there any tax to pay when the options are granted?
No. There is no tax charge at grant for a qualifying EMI option. The potential charges arise only at exercise, and even then only if the strike was below market value, and at sale through capital gains tax. That deferral is a large part of why EMI is so attractive compared with simply being paid a bonus.