UK Tax on Stock Options: EMI, CSOP, RSUs and Unapproved
Two taxes apply to employee share options, at two different moments. Income Tax (and usually National Insurance) can be due on the day the shares become yours. Capital Gains Tax is due on the day you sell them. The scheme your employer uses decides whether the first tax applies at all; the second applies to everyone.
One unapproved option, per share. Exercising at £2 when the share is worth £10 gives £8 of employment income. For Capital Gains Tax your cost is the full £10 (the £2 you paid plus the £8 already taxed), so selling at £15 leaves a £5 gain. EMI and CSOP options skip step 2.
Which tax, and when
Nothing is taxed at grant under any of these schemes. The difference is what happens when you exercise (or when RSUs vest).
| Scheme | When you get the shares | When you sell |
|---|---|---|
| Unapproved options | Income Tax on market value minus what you pay. NI too if the shares are easy to sell (listed companies). | CGT on growth since exercise |
| RSUs | Income Tax and NI on the full market value at vest, through payroll | CGT on growth since vest |
| EMI | Nothing, if the exercise price was at least the market value at grant | CGT on sale price minus exercise price. 18% BADR rate if 2+ years since grant |
| CSOP | Nothing, if exercised 3 to 10 years after grant | CGT on sale price minus exercise price |
EMI and CSOP are tax-advantaged schemes, so the rise in value between grant and exercise escapes Income Tax. Unapproved options and RSUs are not, so that rise is taxed as pay. For listed shares your employer collects the tax and NI through payroll. For shares with no ready market there is no NI, and the Income Tax goes on your Self Assessment.
Worked example: unapproved vs EMI
1,000 options with a £2 exercise price. The shares are worth £10 when you exercise and you sell them later at £15. You are a higher-rate taxpayer with no other gains in 2026/27, and the EMI options were granted more than two years before the sale.
| Step | Unapproved | EMI |
|---|---|---|
| You pay (1,000 × £2) | £2,000 | £2,000 |
| Shares worth at exercise (1,000 × £10) | £10,000 | £10,000 |
| Taxed as pay at exercise | £8,000 | £0 |
| Income Tax 40% + NI 2% | £3,360 | £0 |
| Cost for CGT | £10,000 | £2,000 |
| Sale proceeds (1,000 × £15) | £15,000 | £15,000 |
| Gain | £5,000 | £13,000 |
| Less £3,000 allowance | £2,000 | £10,000 |
| CGT | £480 (24%) | £1,800 (18% BADR) |
| Total tax | £3,840 | £1,800 |
Same shares, same prices, £2,040 less tax. The EMI gain is bigger on paper (£13,000 against £5,000) because nothing was taxed on the way in, but it is charged at 18% rather than a mix of 42% and 24%. The BADR rate rose to 18% in April 2026, so the EMI advantage is smaller than it used to be, not gone.
The sale is an ordinary share disposal
Once the shares are yours, HMRC treats them like any other shares of that company. They join the same Section 104 pool as shares you bought on the open market, with one averaged cost. Shares sold on the vest day to cover tax match the vest under the same-day rule. Buying the same company’s shares within 30 days of a sale triggers the bed and breakfast rule. If your total proceeds pass £50,000 or your gains pass £3,000, you need to report.
The CGT calculator handles the sale. Upload the Schwab brokerage and Equity Awards exports together, or the Morgan Stanley Releases and Withdrawals reports, and each vest goes into the pool at its market value in pounds. For options in a private company, add the exercise by hand on the edit page: the date, the quantity, and the exercise-day market value as the price.
Three mistakes
| Mistake | Fix |
|---|---|
| Using the exercise price (or zero) as the cost of RSU or unapproved shares | Cost is the market value on the exercise or vest day. Anything else taxes the same money twice. |
| Ignoring shares sold on vest day to cover tax | They are disposals. The gain is near zero under the same-day rule, but the proceeds still count towards the reporting threshold. |
| Treating US-listed shares as if they were priced in pounds | Convert the vest value and the sale proceeds to GBP separately. A currency move between the two is part of your gain. |
Sources
- Tax and Employee Share Schemes (GOV.UK)
- Enterprise Management Incentives (GOV.UK): the £250,000 limit and the no-tax-at-exercise condition
- Company Share Option Plan (GOV.UK): the £60,000 limit and the 3-to-10-year window
- HMRC ERSM20192: how RSUs are taxed at vest
- TCGA 1992 s119A: amounts taxed as employment income are added to the CGT cost
- Capital Gains Tax rates (GOV.UK): 18%, 24% and the 18% BADR rate from 6 April 2026