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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

HM Revenue & Customs
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Enterprise Management Incentives (EMI): Taxation of EMI options: Other events triggering an income tax charge

If an employee exercises an EMI option and does not pay income tax on the option gain because of the EMI tax relief, he may be liable to tax if a “stop loss” provision exists. This is a provision that allows an employee to sell his shares for an amount greater than their market value at the time of disposal. The taxable amount is the consideration given on disposal less the market value at the time of disposal and less any expenses incurred in connection with the disposal (Section 446X ITEPA) (see ERSM80040).

If an employee releases an option, and receives some consideration in return for the release, he will have to pay income tax on the amount of the consideration. This will be the case whether or not the consideration is in cash.