UK EMI Stock Options 2026 — CGT vs Income Tax & How to Optimise

You're granted 5,000 share options (EMI, Enterprise Management Incentive) at £2/share, which is the market value on the grant date. You exercise three years later when the shares are worth £5, so the £3/share gain is £15,000. Is that £15,000 taxed as income — 40% tax plus 2% National Insurance, £6,300 — or as a capital gain? If EMI relief applies and you are a higher-rate taxpayer with your annual exempt amount available, the same £15,000 costs £2,880 in CGT. Which one applies turns on whether the option was granted at or above market value and on when you sell. This guide walks through both, and through the timing decisions that change the bill.

Rate note (updated 30 July 2026). CGT is 18% or 24%, not 20%. The 10%/20% pair ended on 29 October 2024, and the rate you pay depends on where the gain lands once it is stacked on your taxable income. Every figure below is worked with a stated income so you can see which band applies.

UK Employee Share Schemes: The Options

EMI is most common for private/early-stage tech companies. CSOP and SAYE are used by larger and listed companies — note that these are two different schemes, and only SAYE allows a discount to market value.

Real-World EMI Scenario: Startup Founder

Meet James, 35, on an £80,000 salary, granted 10,000 EMI options at £1/share grant price. His salary matters: it already fills the basic-rate band, so every pound of gain is taxed at the higher CGT rate of 24%.

Year 0 (grant):

• Grant price: £1/share
• Fair value at grant: £1 (no gain, no tax)
• EMI conditions: Must hold 3 years, exercise after year 3

Year 3 (exercise eligibility):

• Fair value now: £3/share
• Exercise: £1/share (grant price)
• Gain: £2/share × 10,000 = £20,000
• Tax on exercise (EMI): £0 (EMI relief applies)
• James exercises, owns 10,000 shares worth £30,000

Year 4 (sale):

• Share price: £5/share
• Proceeds from sale: £5 × 10,000 = £50,000
• Acquisition cost (basis): £1/share × 10,000 = £10,000 (original exercise price)
• Capital gain: £50,000 − £10,000 = £40,000
• Less the annual exempt amount of £3,000 → taxable gain £37,000
• James's £80,000 salary has already used the whole basic-rate band, so all of it is charged at 24%
• CGT: £37,000 × 24% = £8,880
• Net proceeds: £50,000 − £8,880 = £41,120

Tax-efficient outcome:

• No tax at exercise (EMI relief)
• CGT only at sale (18/24% vs 40% income tax plus National Insurance)
• Total tax: £8,880 (22.2% of the £40,000 gain)

Compare to non-EMI RSUs:

• If the same award were RSUs, vesting at year 3, the vesting value is taxed as employment income and the shares then start with a fresh base cost. On the same £20,000 of value at vest and £20,000 of subsequent growth:
• Income tax at vesting: 40% × £20,000 = £8,000
• CGT at sale: (£20,000 − £3,000) × 24% = £4,080
• Total tax: £12,080 (worse by £3,200)

The EMI Advantage: Tax-Free Exercise

EMI's magic: no income tax and no National Insurance on exercise (if conditions are met):

• The exercise price must be at least the market value of the shares on the grant date. If you were given a discount, income tax and NI are due on that discount at exercise.
• The company must qualify. From 6 April 2026 the tests are gross assets of £120 million or less and fewer than 500 full-time employees (before that date: £30 million and 250). The test is gross assets, not turnover. Companies in excluded activities — banking, farming, property development, legal services, shipbuilding — cannot use EMI.
• You must exercise within 10 years of grant (some agreements written from 2026 allow 15 — your option agreement says which). Missing that deadline loses the relief.
• You must work at least 25 hours a week, or 75% of your working time, for the company.

If these conditions are met:

• Exercise is free of income tax and NI
• Only CGT applies on later sale (18/24%, not 40% income tax plus 2% NI)
• Effective tax rate on gains: 18–24% (vs 42% on the same money as employment income)

Against a 42% employment-income charge, that saves 18–24 percentage points. On a £100,000 gain, that's £18,000 if the whole gain sits above the basic-rate band (42% − 24%) rising to £24,000 if it all falls inside it (42% − 18%). With BADR the saving is £24,000 either way, because the 18% applies regardless of band.

Do not overlook Business Asset Disposal Relief. EMI shares can qualify for BADR without the 5% "personal company" test that applies to ordinary shares — you need only to have been granted the option at least two years before you sell, and to have acquired the shares after 5 April 2013. BADR charges 18% on up to £1,000,000 of lifetime qualifying gains for disposals from 6 April 2026. On James's £37,000 taxable gain that is £6,660 instead of £8,880 — £2,220 saved — and the two-year clock runs from grant, so it is worth checking your grant date before you agree a completion date.

Timing Strategy 1: Exercise + Sell in Different Tax Years

If James exercises 10,000 shares in late March 2026 and sells in April 2026:

Tax year 2025/26 (exercise):

• Exercise: £0 tax (EMI relief)
• CGT: £0 (no sale yet)

Tax year 2026/27 (sale):

• Sale: £40,000 capital gain
• CGT allowance (2026/27): £3,000
• Taxable gain: £37,000
• CGT at 24% (James's salary fills the basic-rate band): £8,880
• Net tax: £8,880

If James exercised and sold in the same tax year (Jan–March 2026):

• Sale proceeds would count in the same year
• CGT allowance would apply to the full £40,000 gain
• Same final tax: £8,880

No timing advantage here if exercised/sold quickly. But if exercised in March 2026, he could delay sale to April 2026 to use a fresh CGT allowance.

Timing Strategy 2: Holding for CGT Taper Relief (Abolished)

Important note: CGT taper relief (discount for holding >1 year) was abolished in 2008. Holding 10 years vs 1 year doesn't give tax relief anymore. Don't rely on this.

Timing Strategy 3: Sell During Low-Income Year

This one works, and the reason is the part most explanations get wrong: CGT is not a flat rate. The lower rate applies to whatever part of your gain fits inside your unused basic-rate band; the higher rate applies to everything above it. That is why the rate is always quoted as a pair rather than a single number.

The basic-rate band is £37,700 of taxable income, sitting on top of the £12,570 personal allowance. Your salary fills it first, and the gain is stacked on whatever is left.

Normal year — £80,000 salary:

• Taxable income: £80,000 − £12,570 = £67,430
• That consumes the entire £37,700 band with £29,730 to spare
• Every pound of the gain is taxed at the higher CGT rate

Sabbatical year — £20,000 income:

• Taxable income: £20,000 − £12,570 = £7,430
• Basic-rate band left unused: £37,700 − £7,430 = £30,270
• £30,270 of the gain falls in the lower CGT band; only the remainder is taxed at the higher rate

On James's £40,000 gain, less the £3,000 annual exempt amount, £30,270 of the £37,000 taxable gain moves down a band. At the 18/24% pair that is 6 percentage points on £30,270 — the bill falls from £8,880 to £7,064, about £1,816 saved by selling in the sabbatical year instead of a working one.

The strategy is real but capped: you can only shelter as much gain as you free up band, and once your salary alone fills the band the saving is zero. It also stacks with Strategy 4 below, because each tax year brings a fresh annual exemption as well as a fresh band.

Timing Strategy 4: Spread Sale Across Tax Years

If James sells 5,000 shares in March 2026 (gain £20,000) and 5,000 in April 2026 (gain £20,000):

Year 2025/26:

• Gain: £20,000
• CGT allowance: £3,000
• Taxable: £17,000 × 24% = £4,080

Year 2026/27:

• Gain: £20,000
• CGT allowance: £3,000
• Taxable: £17,000 × 24% = £4,080
• Total CGT: £8,160 (vs £8,880 if sold in one year)

Saving: £720 — exactly one extra annual exempt amount at his marginal CGT rate (£3,000 × 24%).

That is the whole of the benefit. Splitting a sale buys you a second £3,000 exemption and nothing more, so it is worth doing once the gain exceeds £6,000 and never worth more than one year's exemption at your rate. If splitting also drops part of the gain into an unused basic-rate band, that is the band saving from Strategy 3 stacking on top, not an extra allowance.

Married Couples: Transfer Allowances

If James is married, he can transfer shares to his spouse before sale:

Example:

• James owns 10,000 shares, planning to sell all
• He transfers 5,000 to spouse (gift, no tax)
• Both sell simultaneously (assuming the spouse is also a higher-rate taxpayer, so the same 24% applies):
  • James: 5,000 shares, £20,000 gain, CGT allowance £3,000, tax £4,080
  • Spouse: 5,000 shares, £20,000 gain, CGT allowance £3,000, tax £4,080
• Total: £8,160 (vs £8,880 if he sold alone)

Requirement: the spouse must have no other capital gains, so their own £3,000 exemption is free. If the spouse is a basic-rate taxpayer the saving is much larger, because their share of the gain is charged at 18% rather than 24% up to the top of their unused band — a second allowance and a second band. Transfers between spouses living together are no gain/no loss, so the transfer itself is not a disposal.

Company Share Options: Not All EMI

CSOP (Company Share Option Plan):

• Often offered by larger companies
• Tax treatment: no income tax or NI on exercise provided you buy the shares between 3 and 10 years after they were offered; CGT on sale
• Options must be granted at market value — CSOP has no discount
• Capped at £60,000 of options (raised from £30,000 on 6 April 2023); EMI's limit is £250,000 of options in any 3-year period

SAYE / Sharesave:

• A separate scheme from CSOP: you save a fixed amount monthly (up to £500) for 3 or 5 years, then buy at a price fixed at the start — this is the scheme that allows a discount of up to 20%
• No income tax on the discount; CGT applies on any gain when you sell

SIP (Share Incentive Plan):

• Employees buy partnership shares (up to £1,800/year) and the employer can add up to 2 matching shares per partnership share
• Tax: shares taken out of the plan after 5 years carry no income tax and no CGT on the growth while they were in the plan. Cash dividends on SIP shares are taxable in the normal way; only dividends reinvested as dividend shares inside the plan escape immediate tax.
• The most tax-efficient scheme per pound, but the annual limits are small, which is why it does not replace EMI

Restricted Stock Units (RSUs) / Performance Shares:

• Taxed on vesting (income tax and NI on the vesting value)
• No EMI relief
• 40% income tax + 2% NI at vest, then 18/24% CGT on any growth after vest
• Worst tax treatment

Most tech startups use EMI or RSUs. Check your grant letter to confirm which scheme.

Cash Bonus vs Share Options

If James could take a cash bonus of £20,000 instead of the £20,000 EMI gain:

Bonus:

• Income tax (40%): £8,000
• NI (2%): £400
• Net: £11,600

EMI gain:

• Exercise tax: £0
• Sale CGT: (£20,000 − £3,000 allowance) × 24% = £4,080
• Net: £15,920

EMI is better by £4,320 (options deliver 37% more after-tax value than cash).

This is why early-stage companies offer options instead of high salaries; the tax advantage is huge.

Pitfalls: When EMI Tax Breaks Don't Apply

If conditions aren't met:

• Grant price below market value at grant — the discount is taxed as income and NI at exercise
• Company doesn't qualify (gross assets above £120m, or 500+ full-time employees, or an excluded activity)
• Options exercised more than 10 years after grant (15 where the agreement says so)
• Non-qualifying options (some schemes issue both qualifying and non-qualifying)

If EMI relief doesn't apply, exercise is taxed as income. On a £20,000 gain:

• Income tax (40%): £8,000
• NI (2%): £400
• Total: £8,400
• Then CGT at 24% on a further £20,000 of growth after exercise: another £4,080
• Total tax: £12,480 (vs £4,080 with EMI relief on the same £20,000)

This is why it's critical to confirm your options are EMI-qualifying before exercising.

Final Checklist: Optimizing EMI Tax

• Confirm options are EMI-qualified (check grant letter)
• Check your company's vesting schedule — EMI itself imposes no minimum holding period before exercise
• Exercise within 10 years of grant (15 if your agreement says so); outside that window EMI relief is lost
• Check whether the option was granted at least two years before sale — that is the BADR test for EMI shares, and it is worth 6 percentage points on up to £1,000,000
• If possible, split sale across two tax years (to use two CGT allowances — worth one allowance at your marginal rate, £720 at 24%)
• If married, consider transferring to spouse if they have unused allowance or unused basic-rate band
• Don't hold expecting "taper relief" (abolished; doesn't apply)
• Do consider low-income year timing — it moves part of the gain from 24% to 18% and is worth up to 6pp on the band you free up
• Beware of cashless exercise (broker fees can be significant; avoid if possible)

Next step: Use the Stock Option Tax calculator with your grant price, current share price, and planned sale date. Most UK tech employees with EMI options save £8,000–£20,000 in taxes by understanding the relief and timing carefully.