Is tax payable when EMI share options are granted?

No. There is zero Income Tax and zero National Insurance payable when qualifying EMI options are granted to an employee, provided the individual limit of £250,000 in unrestricted market value (and company-wide limit of £3,000,000) is respected.

How are EMI share options taxed at the date of exercise?

If the option exercise price was set at or above the Actual Market Value (AMV) agreed with HMRC at the date of grant, there is no Income Tax and no National Insurance payable upon exercise. If options were granted at a discount (exercise price lower than grant AMV), Income Tax (and Class 1 NICs if the shares are Readily Convertible Assets) is charged solely on the discount amount.

What is the 2026/27 Business Asset Disposal Relief (BADR) rate for EMI?

For the 2026/27 tax year, the Business Asset Disposal Relief (BADR) rate is 18% (having transitioned from 10% historically and 14% during 2025/26 under statutory Autumn Budget legislation). Qualifying gains up to the £1,000,000 lifetime limit are taxed at 18%, whilst any excess gain is taxed at the standard higher Capital Gains Tax rate of 24%.

Do EMI shares require a 5% personal shareholding to qualify for BADR?

No. Under Section 169I of the Taxation of Chargeable Gains Act 1992 (TCGA 1992), EMI shares are explicitly exempt from the standard 5% minimum voting rights and share capital requirement that applies to other company shares. Furthermore, the 24-month qualifying holding period starts from the date the option was originally GRANTED, rather than the date of exercise.

What are Readily Convertible Assets (RCAs) and why do they matter?

A share is treated as a Readily Convertible Asset (RCA) if trading arrangements exist, such as when the issuing company is listed on an exchange, undergoing an acquisition, or has an established employee benefit trust buying shares. If shares are RCAs, any taxable income arising at exercise must be processed through company PAYE with employer and employee Class 1 NIC deductions.

What happens if an employee leaves the company before exercising their options?

Leaving employment is a 'disqualifying event' under Section 532 ITEPA 2003. Employees typically have a 90-day statutory window to exercise their vested options following cessation of employment to retain full EMI tax benefits. If exercised after 90 days, any growth in share value between the disqualifying event and exercise becomes subject to standard Income Tax and NICs.

Statutory 2026/27 ITEPA Schedule 5 Engine

EMI Share Option Tax Calculator UK

Calculate tax payable at grant, exercise, and exit for Enterprise Management Incentives. Model 2026/27 Business Asset Disposal Relief (BADR 18%) and compare savings against unapproved options.

Typical EMI Option ScenariosSelect a preset to test models

1. Grant & Exercise Details

Number of Option Shares10,000 shares

AMV at Grant Date

HMRC SAV agreed market value

Exercise Strike Price

Amount you pay per share

Actual Market Value at Exercise Date£6.00

2. Sale, Exit & Tax Status

Expected Exit / Sale Price Per Share£12.00 / share

Held ≥ 2 years from Grant Date (BADR)

Qualifies for 18% BADR CGT rate without needing the usual 5% company ownership test.

Readily Convertible Asset (RCA)

If company is undergoing acquisition, shares are RCAs, triggering Class 1 NIC on any discount.

Your Marginal PAYE Income Tax Band

Prior BADR Lifetime Relief Used£0 / £1,000,000

Allowable Legal / Broker Disposal Costs (£)

EMI Tax Efficiency OutcomeEffective Tax: 17.5%

Gross Sale Proceeds

£120,000.00

Total HMRC Taxes

£19,170.00

Net Take-Home Cash

£90,330.00

You save £15,390.00 in tax compared to an unapproved share option scheme. EMI converts 45% PAYE income into 18% capital gains!

Statutory 3-Stage EMI Tax Breakdown

1. At Grant Date

ITEPA 2003 Schedule 5 statutory exemption

£0.00 (Tax-Free)

2. At Exercise Date

Strike price >= AMV at grant: 0% tax & 0% NIC

£0.00

3. At Exit / Sale (Capital Gains Tax)

Chargeable gain: £106,500.00 (after £3,000 exemption)

£19,170.00

BADR Relief Rate (18% on £106,500.00):£19,170.00

Comparison: Approved EMI vs Unapproved Options

Tax Event	Enterprise Management Incentive (EMI)	Unapproved Share Option Scheme
Grant Tax	£0 (No tax or NI)	£0 (No tax)
Exercise Tax	£0 (0% Tax & 0% NI)	Income Tax up to 45% + 2% Employee NI
Sale Tax Rate	18% BADR Rate (No 5% share test)	Standard CGT (18% / 24%)
Total Tax Payable	£19,170.00	£34,560.00

Enterprise Management Incentives (EMI): The UK's Most Generous Equity Scheme

Enacted under Schedule 5 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), Enterprise Management Incentive (EMI) schemes provide exceptional tax advantages for both growing UK enterprises and their key employees. By shielding early-stage equity growth from aggressive PAYE Income Tax and National Insurance charges, EMI transforms employee remuneration into tax-efficient capital gains.

Unlike unapproved option schemes, where any increase in share value prior to exercise is taxed as employment earnings at up to 45% Income Tax plus 2% employee NIC and 15% employer NIC, qualifying EMI options completely eliminate income tax at exercise when granted at fair market value.

The 3 Statutory Tax Stages of an EMI Option

Stage 1: At Grant

Zero tax or NI liability. Options must be registered with HMRC within statutory deadlines via the Employment Related Securities (ERS) online portal.

Stage 2: At Exercise

If strike price ≥ agreed Actual Market Value (AMV) at grant, 0% tax and 0% NI. If discounted, Income Tax applies solely to the initial discount.

Stage 3: At Sale (Exit)

Capital Gains Tax applies to the net gain. Qualifying EMI shares enjoy the preferential 18% BADR rate without needing a 5% personal holding.

2026/27 Business Asset Disposal Relief (BADR) Rules for EMI Shares

Following reforms enacted in the Autumn Budget, Business Asset Disposal Relief (BADR) rates have transitioned to 18% for the 2026/27 tax year (having risen from 10% to 14% in 2025/26). Despite this rate adjustment, EMI shares retain two pivotal statutory advantages under Section 169I TCGA 1992:

No 5% Minimum Shareholding Test: Ordinary business owners must hold at least 5% of ordinary share capital and voting rights to claim BADR. For EMI option holders, this requirement is completely waived. Even an employee with a 0.05% stake qualifies.
Holding Period Clock Starts at Grant: For ordinary shares, the 2-year qualifying period requires holding actual shares. For EMI, the 24-month clock starts on the date the option is granted, allowing "cashless exercise and immediate sale" on exit to qualify for BADR.
£1,000,000 Lifetime Allowance: Eligible gains up to £1m are taxed at 18%, saving £60,000 in Capital Gains Tax compared to the standard 24% higher rate.

Crucial Compliance: HMRC SAV Formal Valuation (Form VAL231)

To guarantee zero tax at exercise, companies should always secure a formal written valuation agreement from HMRC's Shares and Assets Valuation (SAV) team prior to granting options. An agreed Actual Market Value (AMV) remains valid for 90 days. If options are granted without agreed SAV valuation and HMRC later determines that the market value exceeded the exercise price, unexpected PAYE and NIC liabilities will arise at exercise.

Frequently Asked Questions

Clear answers based on official HMRC rules and statutory guidance.

An Enterprise Management Incentive (EMI) is an HMRC-approved tax-advantaged employee share option scheme governed by Schedule 5 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003). It is designed to help small and medium-sized growth enterprises recruit and retain key talent by offering equity incentives that receive substantial tax relief compared to standard salary or unapproved share options.

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Relief is conditional

Business Asset Disposal Relief and EMI share treatment depend on ownership, employment, trading and holding-period conditions. A rate comparison does not establish eligibility.

Check the actual disposal date and available lifetime limit. EMI grant, exercise and sale can have different tax consequences. Income Tax and NI may apply where qualifying conditions are not met.

Check the rules for your circumstances

Official guidance supports the rules described here; it does not approve or certify this calculator. Confirm dates, eligibility and unsupported cases before making a financial decision.