What Are the Benefits of Share Schemes and Stock Options?

Employee share schemes and stock options can give you a direct financial interest in the future success of the business you work for.

Instead of receiving remuneration entirely through salary and cash bonuses, you may be given:

• Company shares
• An Option to acquire shares in the future
• Rights linked to future company value
• Performance-related share awards

These arrangements can help employers recruit, retain and incentivise employees.

For established companies, share plans can form an important part of a wider remuneration package.

For smaller companies and growing businesses, share options can also provide employees with the opportunity to participate in future growth where the employer may not be able to offer the same level of fixed cash remuneration as a larger organisation.

Share awards can also be linked to:

• Individual performance
• Company performance
• Continued employment
• Particular financial targets
• A Future sale or flotation

However, the value of shares and options can rise or fall, and the amount you ultimately receive will depend on the terms of the particular scheme.

Tax-Advantaged Employee Share Schemes

UK tax legislation provides favourable tax treatment for certain employee share schemes where the relevant statutory conditions are satisfied.

These are now generally referred to as tax-advantaged employee share schemes rather than simply "HMRC-approved schemes".

The four main tax-advantaged arrangements are:

• Share Incentive Plans
• Enterprise Management Incentives
• Save As You Earn schemes
• Company Share Option Plans

The tax treatment differs significantly between these schemes.

It is therefore incorrect to assume that all employee shares are taxed in the same way.

Shares or options granted outside a tax-advantaged arrangement can also be provided, but they may attract Income Tax and National Insurance under the normal employment-related securities rules.

Capital Gains Tax may separately become relevant when shares are eventually sold.

1. Share Incentive Plans

A Share Incentive Plan, commonly called a SIP, is an all-employee share plan.

Unlike an option plan, a SIP involves shares being acquired for you and held within a trust established for the plan.

All qualifying employees and directors must generally be eligible to participate and be invited to do so on the same terms, subject to the statutory rules.

An employer can impose a qualifying period of employment, although the maximum permitted period depends on the type of SIP award and can generally be up to 18 months.

What Types of Shares Can a SIP Provide?

There are four principal types of SIP shares.

Free Shares

Your employer can award you up to £3,600 worth of free shares in each tax year.

Free share awards can potentially take account of matters such as:

• Pay
• Length of service
• Hours worked
• Performance

provided the statutory conditions governing the plan are satisfied.

Partnership Shares

You can use part of your pre-tax salary to buy partnership shares.

The maximum amount that can generally be used in a tax year is the lower of:

• £1,800
• 10% of your salary for that tax year

An employer can set a lower limit within its own scheme.

Matching Shares

Where the employer's scheme provides for matching shares, it can award up to two free matching shares for each partnership share you buy.

The employer can choose whether to offer matching shares and what matching ratio to use within the statutory maximum.

Dividend Shares

A SIP can also permit dividends received on plan shares to be used to acquire additional dividend shares.

There is currently no general annual monetary limit on dividend shares.

What Are the Tax Advantages of a SIP?

SIPs can provide significant Income Tax and National Insurance advantages.

Broadly, if relevant SIP shares remain within the plan for the required period, favourable tax treatment can apply.

For example, if shares are kept within the SIP for 5 years, you will generally not pay Income Tax or National Insurance on their value when they are removed from the plan.

Dividend shares have separate rules and can receive favourable treatment after the relevant holding period.

Capital Gains Tax treatment can also be favourable.

For example, if SIP shares remain within the plan until they are sold, there will generally be no Capital Gains Tax on that disposal.

Different tax consequences can arise if shares are removed from the plan early.

What Happens if I Leave My Employment?

Leaving employment can affect SIP shares.

The consequences depend on:

• Which type of shares you hold
• How long they have been held
• Why your employment ended
• The Plan rules
• Applicable tax legislation

Certain recognised circumstances can receive more favourable treatment.

You should therefore check the plan documentation before resigning or agreeing the terms of an exit.

2. Enterprise Management Incentives

Enterprise Management Incentives, commonly called EMI options, are tax-advantaged share options designed primarily for qualifying smaller and growing trading companies.

Unlike a SIP, an EMI arrangement does not have to be offered to every employee.

An employer can choose:

• Which eligible employees receive EMI options
• How many options they receive
• The Exercise price
• Vesting conditions
• Performance conditions

An EMI option gives you the right to acquire company shares in the future at an exercise price established under the option agreement.

If the company's share value increases significantly between grant and exercise, the option can become valuable.

Which Companies Can Use EMI?

The EMI limits were substantially expanded from 6 April 2026.

For most qualifying companies granting EMI options from that date, the company can generally have:

• Gross assets of no more than £120 million
• Fewer than 500 full-time equivalent employees
• No more than £6 million of unexercised qualifying EMI options

The previous general limits were:

• £30 million gross assets
• Fewer than 250 employees
• £3 million of company EMI options

Those previous thresholds remain relevant to older options and certain specified companies under the detailed transitional rules.

The company must also satisfy other statutory conditions.

In broad terms, EMI is aimed at qualifying independent trading companies and certain activities are excluded.

Excluded activities can include areas such as:

• Banking
• Insurance
• Certain financial activities
• Property development
• Legal services
• Accountancy services
• Farming

The detailed eligibility rules should be checked for the particular company.

How Much Can an Employee Receive Under EMI?

An eligible employee can generally hold qualifying EMI options over shares with a value at grant of up to £250,000 within a three-year period.

Relevant CSOP options can also count towards the individual EMI financial limit.

What Are the Working-Time Requirements?

To qualify for an EMI option, you must normally work for the relevant company or a qualifying subsidiary for at least:

• 25 hours each week
• 75% of your total working time, if that is less than 25 hours

The test considers other remunerative work when determining your total working time.

Directors can qualify where they meet the relevant employee conditions.

Can a Major Shareholder Receive EMI Options?

There are restrictions where an employee already has a significant interest in the company.

Broadly, an employee cannot qualify for a new EMI option if they have a material interest of more than 30%, taking into account the detailed statutory attribution rules.

This can include interests held through certain associates.

What Are the Tax Advantages of EMI Options?

There is generally no Income Tax or National Insurance charge simply because a qualifying EMI option is granted.

Where the option allows you to acquire the shares for at least their market value at the date the option was granted and the relevant statutory conditions continue to be satisfied, there will generally also be no Income Tax or National Insurance charge on exercise.

If the exercise price was set below the relevant market value at grant, Income Tax and potentially National Insurance can arise on the discounted element.

Capital Gains Tax may subsequently apply when the shares are sold.

How Long Can EMI Options Remain Exercisable?

Another important change took effect from 6 April 2026.

For eligible companies, the maximum qualifying exercise period for new EMI options can now extend to 15 years from grant, compared with the previous 10-year maximum.

Certain existing unexercised and unexpired EMI options can also be amended so that their qualifying exercise period extends to a maximum of 15 years from the original grant date.

The actual period available to you will depend on your individual option agreement.

3. Save As You Earn Schemes

A Save As You Earn scheme, usually referred to as SAYE, combines:

• A Savings arrangement
• A Share option

SAYE schemes are generally all-employee arrangements.

They are commonly operated by larger companies, including listed businesses.

How Does SAYE Work?

You enter into a savings contract lasting either:

• 3 Years
• 5 Years

You can currently save up to £500 per month.

The savings are generally made from your net salary.

At the same time, you receive an option giving you the right to purchase shares in your employer at a predetermined exercise price.

The option price can be set at a discount of up to 20% of the market value of the shares when the option is granted.

What Happens at the End of the Savings Period?

At the end of the savings contract, you can normally choose whether to:

• Use your savings to exercise the share option
• Keep your cash savings instead

This is an important feature of SAYE.

You are not obliged to buy the shares simply because you entered the scheme.

If the market value has fallen below the exercise price, you may decide that exercising the option does not make financial sense and instead take back your savings.

Any applicable SAYE interest or bonus can also receive favourable tax treatment.

What Are the Tax Advantages?

Where the statutory SAYE conditions are satisfied, you generally do not pay Income Tax or National Insurance on the difference between:

• The Price you pay for the shares
• Their Market value when the option is exercised

Capital Gains Tax may become payable if you subsequently sell the shares at a gain.

However, favourable CGT treatment may be available where qualifying shares are transferred directly into:

• An ISA within the applicable period
• A Pension under the relevant rules

Can an Employer Require a Minimum Period of Service?

Yes.

A SAYE scheme can impose a qualifying period of employment before an employee is eligible to participate.

The qualifying period cannot generally exceed 5 years.

What Happens if I Leave Before the SAYE Scheme Ends?

Special rules apply when employment ends.

In certain recognised circumstances, such as:

• Injury
• Disability
• Redundancy
• Retirement
• Certain TUPE transfers
• Certain corporate changes

the plan can provide a right to exercise the option early.

Where the statutory requirements are met, favourable tax treatment can continue to apply.

Different consequences can apply where you voluntarily resign or leave for another reason.

You should therefore check the SAYE rules before your employment ends.

4. Company Share Option Plans

A Company Share Option Plan, commonly called a CSOP, allows an employer to grant selected employees or directors tax-advantaged options to acquire shares.

Unlike SIP and SAYE, a CSOP is not an all-employee scheme.

The employer can therefore decide which eligible employees will participate.

CSOPs are often used for:

• Senior employees
• Directors
• Key employees

although they are not legally restricted to those groups.

How Much Can I Hold Under a CSOP?

For options granted on or after 6 April 2023, the maximum market value of shares that an individual can generally hold under qualifying unexercised CSOP options is:

£60,000

This replaced the previous £30,000 individual limit.

The value is generally measured by reference to the market value of the shares when the option is granted.

The £60,000 figure is not an annual allowance.

It applies to the aggregate qualifying CSOP options held by the individual under the relevant rules.

Do I Have to Exercise a CSOP Option?

No.

Receiving an option gives you a right to acquire shares rather than an obligation to do so.

You therefore do not normally make the same immediate investment that you would if you purchased shares outright.

Whether exercising ultimately makes financial sense will depend on matters including:

• Exercise price
• Market value of the shares
• Tax position
• Plan rules

When Can a CSOP Option Be Exercised Tax-Efficiently?

Under the normal tax-advantaged rules, there will generally be no Income Tax or National Insurance on the option gain where a qualifying CSOP option is exercised:

• At least 3 years after grant
• No later than 10 years after grant

provided the relevant statutory conditions and scheme rules are satisfied.

Tax advantages can also apply where an option is exercised earlier in specified good-leaver circumstances or following certain qualifying corporate events.

What Happens if I Leave Employment?

The CSOP scheme rules should explain what happens when employment ends.

Options may:

• Lapse
• Remain exercisable for a limited period
• Become exercisable early
• Be treated differently depending on the reason for leaving

Certain good-leaver circumstances can permit tax-advantaged exercise within the applicable period.

These can include situations involving:

• Injury
• Disability
• Redundancy
• Retirement
• Certain TUPE transfers

Other corporate events can also trigger special rules.

The fact that an employee leaves does not therefore produce the same outcome under every CSOP.

What Should I Check Before Leaving Employment?

Share schemes and stock options can become particularly important when employment is ending.

Before resigning, accepting redundancy or signing a settlement agreement, you should understand what will happen to:

• Vested shares
• Unvested options
• Restricted shares
• Good-leaver status
• Bad-leaver status
• Exercise periods
• Performance conditions
• Deferred awards
• Tax treatment

The termination date itself can be particularly important.

For example, an option or award may:

• Vest shortly after your proposed termination date
• Lapse when notice is given
• Lapse when employment actually terminates
• Continue during garden leave
• Receive special treatment on redundancy

The employment contract alone may not provide the complete answer.

You should also check:

• Share-plan rules
• Individual award documentation
• Option agreements
• Shareholder agreements
• Relevant company policies

Where significant share or option value is involved, the treatment of these benefits can also form part of negotiations over a Settlement Agreement.

The legal and tax treatment of employee shares can be complex, and the consequences of exercising, selling or losing an award will depend on the particular scheme and individual circumstances.