EMI Options (EMI)

TL;DR

UK tax-advantaged share-option scheme letting qualifying companies grant employees up to £250k of options each, taxed at 10% CGT not income.

The Enterprise Management Incentive (EMI) is the UK equivalent of US ISOs. Qualifying companies — under £30m of gross assets, fewer than 250 employees, with a UK trading establishment — can grant each employee up to £250,000 (and the company up to £3m total) of EMI options. The grant is tax-free, exercise carries no income tax provided the strike price equals the agreed market value at grant, and the eventual gain on sale is taxed under Business Asset Disposal Relief at a flat 10% (up to a £1m lifetime cap).

EMI is materially more generous than the alternative (unapproved options taxed as income on exercise) and is the default mechanism for UK startup employee equity. Founders agree the 'AMV' valuation with HMRC up front to lock in a low strike price before growth widens the spread.

Worked example

A UK SaaS grants an early hire 12,000 EMI options at a 50p AMV strike (total notional £6,000). On a £40 sale price, the £39.50 per-share gain is taxed at 10% under BADR — the employee nets £426,600 vs roughly £237,000 had the same gain been taxed as income at 45% plus NIC.

Common pitfalls

• Granting EMI to non-employees (contractors and advisors don't qualify — use unapproved options).
• Forgetting to file the EMI grant within 92 days of grant on HMRC's online service — late filings invalidate the scheme.
• Letting the company outgrow EMI thresholds without planning a fallback option-pool structure.

When this shows up in a pitch deck

UK Series A/B decks include 'EMI option pool — 10–15% fully diluted, AMV agreed with HMRC' on the cap-table slide.

Related terms

• ISO — A US tax-advantaged stock option for W-2 employees, eligible for long-term capital-gains treatment if holding-period requirements are met.
• Option Pool — Equity reserved for future employee, advisor, and contractor grants, usually sized as 10–20% of fully diluted shares.
• Strike Price — The fixed price at which an option holder can purchase a share, set at fair market value on the grant date and locked in for the option's life.
• ESOP — Employee Stock Option Plan — the legal structure that lets a company grant options to employees at a defined strike price, governed by board approval and 409A.
• Vesting — The schedule by which equity grants are earned over time, typically 4 years with a 1-year cliff for founders, employees, and advisors.

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