Employee Share Schemes and Tax Planning: EMI, CSOP, SAYE, SIP and Unapproved Options

For senior employees, executives, and key staff in growth companies, equity participation — in the form of share options or share awards — is increasingly a material component of total compensation. In favourable circumstances, equity can dwarf salary income over a career. The tax treatment, however, varies enormously across scheme types, timing of exercise, and individual circumstances. Getting equity planning wrong can mean paying income tax on gains that should have been subject to CGT, or missing opportunities to claim Business Asset Disposal Relief.

This guide explains the main UK employee share scheme types available to HNW employees and executives, their tax treatment, planning considerations, and the specific issues facing internationally mobile employees.

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Overview: The Main Scheme Types

UK employee share schemes broadly fall into two categories: HMRC-approved (statutory) schemes, which carry preferential tax treatment, and unapproved arrangements, which do not.

Approved statutory schemes:

• Enterprise Management Incentives (EMI) — for qualifying SME companies
• Company Share Option Plan (CSOP) — broader company eligibility, capped per employee
• Save As You Earn (SAYE) — broad-based, linked to savings contracts
• Share Incentive Plan (SIP) — broad-based, income tax-free allocation and matching

Unapproved options: Any option arrangement that does not meet the conditions for an approved scheme. More flexible, but fully taxable as employment income on exercise.

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Enterprise Management Incentives (EMI)

EMI is the most tax-efficient scheme for employees of qualifying SME companies (gross assets below £30 million, fewer than 250 employees). Options granted at market value (agreed with HMRC) generate no income tax on exercise; growth from exercise price to sale price is subject to CGT, potentially at the Business Asset Disposal Relief rate (18 per cent for 2026/27, having risen from 10 per cent to 14 per cent in April 2025 and to 18 per cent in April 2026, on gains within the £1 million lifetime limit).

Critically, the BADR two-year qualifying period runs from the date of option grant, not exercise. This means an employee granted EMI options today who exercises and sells in 2.5 years could access BADR — making EMI the most favourable scheme for those in growing companies approaching exit.

Maximum per employee: £250,000 (market value at grant). Company limit: £3 million outstanding. See our separate EMI guide for full detail.

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Company Share Option Plan (CSOP)

CSOP allows companies to grant options of up to £60,000 per employee (market value at grant) on a tax-advantaged basis. Unlike EMI:

• No employee or company eligibility restrictions based on size
• Options must be exercised between three and ten years of grant
• No income tax at exercise (provided the exercise price equals market value at grant)
• CGT applies to growth from exercise price to sale price

CSOP is the appropriate vehicle for companies too large or in the wrong sector for EMI. The £60,000 limit per employee constrains its value for senior executives in valuable companies, but for a broader management tier it can be highly effective.

Since April 2023, CSOP options can be granted over restricted shares (where the shares carry restrictions such as forfeiture provisions) without those restrictions triggering a tax charge — broadening the scheme's utility.

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Save As You Earn (SAYE)

SAYE is a broad-based scheme designed to encourage wide employee share ownership. Under SAYE:

• Employees save a fixed monthly amount (£5–£500 per month) into a certified savings account over a 3 or 5-year savings period
• At the end of the savings period, the employee may use their savings (plus a tax-free bonus) to exercise options to buy company shares at up to a 20 per cent discount to the market price at grant
• If the market price at exercise is above the option price, the employee exercises and buys at the discounted price, realising an immediate gain
• Income tax does not apply on exercise; the gain from grant price to market value at exercise is exempt
• CGT applies to any further growth from market value at exercise

SAYE is popular because it carries no financial risk for employees: if the share price falls below the option price, employees simply take back their savings (with a small tax-free bonus). The discount of up to 20 per cent provides a meaningful initial cushion.

For HNW employees, SAYE is often not a primary planning vehicle (the monthly savings cap is low relative to total compensation), but it should not be ignored — the CGT treatment of the gain on exercise and the free option on the upside are genuine advantages.

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Share Incentive Plan (SIP)

SIP is the most flexible broad-based scheme, with four separate elements:

Free shares: Companies can award up to £3,600 of free shares per employee per year. Income tax and NIC are avoided if shares are kept in the SIP trust for five years.

Partnership shares: Employees can purchase up to £1,800 or 10 per cent of salary (whichever is lower) of shares from pre-tax and pre-NIC salary. The income tax and NIC saving is immediate.

Matching shares: Companies can give up to two matching shares for each partnership share purchased. Matching shares must be held for three to five years to retain income tax relief.

Dividend shares: Tax-free dividends from SIP shares can be reinvested in further dividend shares.

For HNW employees in large companies with SIP arrangements, partnership shares are particularly efficient — the NIC saving alone (employee NIC at up to 8 per cent) plus income tax relief makes this an attractive low-risk route to building shareholding.

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Unapproved Options

Where none of the statutory schemes apply — either because the company does not qualify, the employee is ineligible, or the scheme limits are exceeded — companies may grant unapproved share options.

On exercise of unapproved options, the difference between market value and exercise price is taxed as employment income (subject to PAYE and employee/employer NIC). There is no income tax exemption. The full gain to exercise is fully taxed.

Post-exercise gains (from exercise price to sale) are subject to CGT. There is no BADR entitlement for unapproved options.

Unapproved options are sometimes used for:

• Employees holding more than 30 per cent of share capital (ineligible for EMI)
• Companies that have exhausted EMI scheme limits
• Awards to non-employees (consultants, advisers)
• International employees where approved scheme conditions cannot be met

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Timing of Exercise: The Planning Opportunity

For any scheme where CGT (rather than income tax) applies on exercise or sale, timing is important.

Use of annual CGT exempt amount: Each individual has a £3,000 annual CGT exempt amount (2026/27). Exercising and selling in stages (where possible) across multiple tax years allows this exemption to be used each year.

BADR timing: For EMI, ensure the two-year clock from grant has elapsed before exercise and sale. For CSOP, there is no BADR clock from grant; instead, BADR applies based on holding shares for two years and the underlying company qualifying as a "personal company" (5 per cent shareholding and employment conditions).

Income year management: Where unapproved options are being exercised, and income tax applies, the timing of exercise affects the tax year in which the charge arises. Exercising close to a year-end when other income is unusually low (sabbatical, career break, parental leave) can reduce the marginal rate.

Interaction with pension annual allowance: Large equity income events (exercise of unapproved options, receipt of RSU vesting) can push "threshold income" or "adjusted income" above the taper thresholds, reducing the annual allowance. Pension contribution planning must be done alongside equity planning, not separately.

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Internationally Mobile Employees: Share Vesting Across Jurisdictions

For employees who vest shares or exercise options while resident in more than one country, the tax treatment becomes significantly more complex. The general principle is that income arising from shares (or options) is taxable in the country where the employee was resident when the services that earned the equity were performed.

Apportionment: Where vesting occurs over a period during which the employee was resident in multiple jurisdictions, a time-apportionment applies. The UK will tax the proportion attributable to UK service; the overseas jurisdiction will tax the proportion attributable to service there.

Reporting obligations: HMRC requires UK residents to report share scheme income and gains on their self-assessment return. The employment-related securities (ERS) online reporting system requires employers to submit annual returns.

Double tax relief: Double tax treaties between the UK and the employee's other jurisdiction of residence typically prevent double taxation, but the mechanics vary. Advance planning and specialist cross-border tax advice are essential for anyone with multi-country equity.

Departure from the UK: Shares or options held at the time of departure from the UK may be subject to a "deemed exercise" or "deemed disposal" in some circumstances, particularly for internationally mobile executives subject to both UK and US tax rules. The interaction of FATCA, UK employment-related securities rules, and overseas domestic rules is an area requiring specialist advice.

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Summary: Scheme Comparison at a Glance

Scheme	Max per employee	Tax at exercise	CGT on growth	BADR eligible
EMI	£250,000	None (at MV)	Yes, BADR from grant date	Yes
CSOP	£60,000	None (at MV)	Yes, BADR from share date	Yes
SAYE	Savings-linked	Exempt	Yes	Potentially
SIP	£3,600 free shares	Deferred/exempt	Yes	Potentially
Unapproved	Unlimited	Income tax + NIC	Yes	No

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This guide is for general information only and does not constitute regulated financial or tax advice. Tax treatment of share schemes depends on individual circumstances and may change. Cross-border arrangements are particularly complex. Seek specialist professional advice.

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How Global Investments Can Help

We advise senior employees, executives, and founders on the financial planning implications of equity awards — from modelling the after-tax value of a proposed option grant to planning the timing of exercise and sale, managing income year implications, and coordinating equity planning with pensions, ISAs, and estate planning.

For internationally mobile employees with equity vesting across multiple jurisdictions, we work alongside specialist cross-border tax advisers to ensure the planning is coherent and compliant. Contact us to discuss your equity planning requirements.