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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

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HM Revenue & Customs
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Enterprise Management Incentives (EMI): Taxation of EMI options: Charge on exercise of a discounted option following a disqualifying event

If the exercise of an option takes place more than 90 days (40 days prior to 17 July 2013) after a disqualifying event where an option has been granted at a discount, income tax (and National Insurance, where the shares are readily convertible assets) is charged on both the amount of discount and the amount by which the market value of the shares at date of exercise exceeds their market value immediately before the disqualifying event.

 

Example

 

Exercise of an option more than 90 days (40 days prior to 17 July 2013) after a disqualifying event where option is granted at a discount

B is granted an option to acquire 1,000 shares.

The market value of each share at the date of grant is £5.

The exercise price is £3.

The market value of a share immediately before a disqualifying event is £9.

The market value on the date of exercise is £25.

The taxable amount when he exercises the option will be the sum of: -

the discount (£5 - £3) x 1000 = £2,000 and

the gain on exercise (£25 - £9) x 1000 = £16,000.

The total taxable amount will therefore be £18,000.