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HMRC internal manual

Capital Gains Manual

Enterprise Management Incentives (EMI): employee: CGT

The Capital Gains Tax consequences for the employee will depend on whether the option is

  • exercised by the employee
  • assigned or released
  • not exercised and lapses.

The capital gains treatment of the employee is in most respects the same as for options granted under an unapproved scheme, see CG56384. However, the Income Tax treatment of EMI options will usually lead to shares acquired on the exercise of an EMI option having a lower acquisition cost for Capital Gains Tax purposes than shares acquired on the exercise of an unapproved option.

If S529 ITEPA03 applies, there is no liability under S476 ITEPA03 (charge on exercise of option by employee). Thus the acquisition cost of the shares acquired on exercise of the EMI option, see CG56384, becomes simply the total of

  • the amount actually paid for the option by the employee
  • the amount actually paid by the employee for the shares acquired on exercise of the option.

See CG56384.

If S531 ITEPA03 applies, there is a limited Income Tax charge under S476 ITEPA03. There may also be a charge if the option is exercised after a disqualifying event, see S532 ITEPA03.