A worked example
The company is worth £4 million when it grants EMI options over 10% of its shares, £100,000 each to four employees, at that market value. At least two years later it is sold for £12 million, so each 2.5% is worth £300,000. These two values are an illustration, not figures from the Budget. Each employee works the hours EMI requires, holds the shares from exercise to sale and has no other gains.
| For each employee | Before the Budget | After the Budget | Difference |
|---|---|---|---|
| Options granted (within the £250,000 EMI limit) | £100,000.00 | £100,000.00 | |
| Tax on grant | £0.00 | £0.00 | £0.00 |
| Income tax and National Insurance on exercise | £0.00 | £0.00 | £0.00 |
| Gain on the sale: £300,000 − £100,000 | £200,000.00 | £200,000.00 | |
| Capital gains tax: (£200,000 − £3,000) × 18%, with Business Asset Disposal Relief | £35,460.00 | £35,460.00 | £0.00 |
| Capital gains tax for the four | £141,840.00 | £141,840.00 | £0.00 |
The company's £400,000 of options sits well within the £6 million company limit, and its 12 staff within the 500 limit. The Budget cut the lifetime limit for Business Asset Disposal Relief to £500,000 from 6 April 2027, but each employee's £200,000 gain is below it, so their tax does not change.
What the Budget added, from 6 April 2027:
- EMI2. The Company Share Option Plan is renamed EMI2. Its limit per employee doubles from £60,000 to £120,000 and no longer counts against the £250,000 EMI limit, so an employee can hold up to £370,000 of options across the two. Its exercise period goes from 10 to 15 years.
- Disqualifying events. After a disqualifying event, employees have 180 days to exercise their EMI options instead of 90.
- Employee ownership trusts. EMI's existing exception for companies controlled by an employee ownership trust is extended to companies arranging to become controlled by one.
- Grants. No separate notice to HMRC when options are granted on or after 6 April 2027: grants are reported in the EMI end-of-year return instead. This was announced at Budget 2025 and is now being legislated.
When it takes effect
6 April 2027, for all four changes, to be legislated in Finance Bill 2026-27. Until then EMI and the Company Share Option Plan work as they do now.
Who it doesn't affect
A company whose employees' options fit within £250,000 each, and whose employees' gains on sale stay within the £500,000 BADR limit, sees no change in tax. The new room under EMI2 matters for companies that want to give an employee more than £250,000 of options, or that have outgrown EMI.
Where this comes from
- Budget 2026 (HM Treasury), policy decisions, "Business and enterprise taxation": Enterprise Management Incentives 2 (the CSOP limit raised to £120,000 and separated from the EMI limit), the 180-day window after a disqualifying event, EMI kept for companies moving to an employee ownership trust, the grant notification removed, and the BADR lifetime limit, all from 6 April 2027
- Budget 2026: Overview of Tax Legislation and Rates (HMRC), sections 1.6 and 1.7: the CSOP and EMI changes from 6 April 2027, and the end of the separate grant notice for options granted on or after 6 April 2027 (announced at Budget 2025)
- Budget 2026 OOTLAR, Annex A, capital gains: BADR at 18% with a £500,000 lifetime limit from 2027/28, and the £3,000 annual exempt amount
- Entrepreneurship in the UK: Start. Scale. Stay. (HM Treasury, Budget 2026), paragraphs 3.12 to 3.14: up to £250,000 of EMI and £120,000 of EMI2 options, £370,000 in all
- Tax and Employee Share Schemes: Enterprise Management Incentives (GOV.UK): options up to £250,000 per employee; no income tax or National Insurance on exercise at the market value at grant
- Expanding the EMI limits (HMRC tax information and impact note, Budget 2025): for options granted from 6 April 2026, a £6 million company limit, £120 million gross assets, 500 employees and a 15-year exercise period
- Business Asset Disposal Relief (GOV.UK): 18%, and EMI shares qualify where the option was granted at least two years before the sale
- Capital Gains Tax allowances (GOV.UK): the £3,000 annual exempt amount
Every figure on this page comes from the Budget documents published on GOV.UK on , and was checked by Alan Davidson FCA. Last updated . It is general information, not advice on your own position.