UK Employee Share Schemes: Tax Treatment for Internationally Mobile Employees

Employee share schemes: the international dimension

Employee share schemes are among the most valuable components of senior executive remuneration. For UK employees who remain UK-resident throughout their career, the tax treatment is complex but manageable. For internationally mobile employees — those who are granted options in one country and exercise them in another, or who move mid-vesting — the complexity multiplies considerably.

This guide sets out the main UK-approved share scheme structures, their tax treatment, and the particular issues that arise for employees who work across multiple jurisdictions during the grant-to-exercise or award-to-vesting period.

The UK approved schemes

Enterprise Management Incentives (EMI)

EMI is the most tax-advantaged employee share option scheme available, reserved for qualifying SMEs. The company must be a trading company (or holding company of a trading group), must have gross assets of £120 million or less, must have fewer than 500 full-time equivalent employees, and must not be a subsidiary of a larger group. (The gross-assets and employee limits were expanded from £30 million and 250 employees respectively with effect from 6 April 2026.)

Options can be granted on shares worth up to £250,000 per employee at grant. The options can be exercised at any price — including below market value. Tax treatment depends on the exercise price:

If the exercise price equals or exceeds the market value at grant, there is no income tax on exercise. The gain from exercise price to eventual sale price is taxed as a capital gain, typically at CGT rates. Business Asset Disposal Relief may apply, reducing the rate to 18% (for 2026/27) on the first £1 million of qualifying gains.

If the exercise price is below the market value at grant (a "discounted option"), income tax and NICs apply on the discount element at the time of exercise, with the remaining gain taxed as a capital gain.

EMI options are ideal for owner-managed business employees and key early-stage staff. For internationally mobile employees, the EMI structure is simpler than many unapproved arrangements because the income tax element at exercise (if any) is clear, and the eventual CGT on sale is straightforward under most UK tax treaties.

Company Share Option Plans (CSOP)

CSOP is an HMRC-approved option scheme available to any company, including large quoted companies. The limit was doubled to £60,000 of shares (valued at grant) per employee in April 2023. Options must be granted at market value at the time of grant.

Provided the option is exercised between three and ten years after grant, there is no income tax or NICs on exercise. The full gain — from exercise price to sale price — is taxed as a capital gain. For internationally mobile employees, the three-to-ten year window is important to note: early exercise may eliminate the tax advantage.

Share Incentive Plans (SIP)

The SIP allows companies to award shares directly to employees in a tax-efficient manner. Free shares of up to £3,600 per year can be awarded; partnership shares (purchased from pre-tax salary) of up to £1,800 per year; and matching shares of up to two matching shares for each partnership share purchased.

Shares held within the SIP plan for five years are generally free of income tax and NICs. Gains on eventual sale, after shares leave the plan, may be subject to CGT. For internationally mobile employees, the five-year holding period creates planning complications if they leave the UK before the period is complete.

Save As You Earn (SAYE/Sharesave)

SAYE allows employees to save a regular monthly amount (between £5 and £500 per month) over three or five years, then use the accumulated savings to purchase shares at a price set at the beginning of the savings period (typically up to 20% below market value at grant). If shares have risen, the employee buys at the lower price and immediately has a gain. This gain is not subject to income tax or NICs. The eventual disposal may be subject to CGT.

SAYE is designed for broadly-based employee participation. For internationally mobile employees, the position if they leave the company or change UK tax residence before the savings period is complete can be complex.

Unapproved arrangements: RSUs, PSPs, and phantom shares

Many senior executives — particularly in multinational companies — participate in unapproved arrangements: Restricted Stock Units (RSUs), Performance Share Plans (PSPs), or phantom share schemes that pay cash rather than shares.

These arrangements are not designed to meet HMRC's approved scheme criteria. The tax treatment is correspondingly less favourable: income tax and employee and employer NICs are charged on the market value of shares delivered at vesting (for RSUs and PSPs) or on the cash payment (for phantom shares). The full value is employment income, not a capital gain. For additional-rate taxpayers, this means 45% income tax plus 2% NICs (above the upper earnings limit) on the full gain.

The absence of a capital gains element means that the more sophisticated international planning available for approved schemes (treaty CGT treatment) is largely unavailable. The income from unapproved arrangements is employment income, and the treaty analysis for employment income is different.

The international apportionment of gains

When an employee is granted options or awarded shares while working in one country and those options vest or are exercised while the employee is in a different country, the gain must be apportioned between the two countries for tax purposes.

The general principle, consistent with OECD guidance and reflected in most UK double tax treaties, is that the taxable gain is apportioned based on the proportion of working days spent in each jurisdiction during the relevant period — typically from grant to exercise (for options) or from award to vesting (for RSUs).

For example: an executive is granted CSOP options in the UK while fully UK-resident. Three years later, they exercise the options after having spent 40% of the intervening working days in Germany and 60% in the UK. On this basis, Germany would have a taxing right over 40% of the gain, and the UK over 60%.

In practice, this requires detailed record-keeping of working days in each jurisdiction throughout the vesting period. Many internationally mobile executives do not maintain such records and face significant compliance challenges when options are exercised.

Double tax treaty analysis

The treaty between the UK and the employee's country of residence at exercise will govern whether the UK can tax the full gain or only the UK-period portion. Most treaties follow the OECD model article 15 analysis: "income from employment" is taxable in the country of employment (i.e., where the work was done), not merely where the employee happens to be resident at the point of exercise.

This means that even after an employee has left the UK and become fully non-UK-resident, HMRC may retain taxing rights over the UK-period portion of the option gain. This is often missed by both employees and their advisers, leading to under-reported UK tax liabilities on exercise.

Conversely, the new country of residence may also assert taxing rights on the full gain (particularly if the treaty is less clearly worded). Double taxation credit mechanisms should address the overlap, but the mechanics vary by treaty and require specialist advice.

Planning considerations for mobile employees

Before accepting international secondment or relocation, employees with outstanding option grants or unvested share awards should take advice on:

Whether any options should be exercised before departure, while still UK-resident — particularly if the gain would be taxed at CGT rates in the UK but as income in the destination country.

Whether the destination country's tax treatment of the UK-granted shares is favourable, neutral, or punitive — some countries treat share options as ordinary employment income regardless of treaty position.

The record-keeping requirements for working day apportionment — both countries may require precise evidence.

Whether the employer's share plan rules allow exercise while non-UK-resident — some plans restrict exercise to UK-resident employees.

This is a highly specialist area. Tax rules differ by country, treaty provisions vary, and mistakes are expensive. Always take advice from both a UK tax adviser and a tax adviser in the destination country before exercising internationally affected share options.

How Global Investments can help

Global Investments works with internationally mobile executives on the cross-border tax implications of employee share schemes, coordinating UK tax planning with local tax advisers in the relevant jurisdictions. We can model the tax cost of exercising options before versus after international relocation, help establish the working day apportionment, and ensure the cross-treaty relief is claimed correctly. Contact our international tax team to discuss your share scheme arrangements.