ETASSUM57200 | Enterprise Management Incentives (EMI): Taxation of EMI options: Capital Gains Tax – example

The Taxation of Chargeable Gains Act 1992 (TCGA)

Example

B is granted an EMI option to acquire 2,000 shares at market value, £10 each. He leaves the company, a disqualifying event, when the shares are worth £17 each. He exercises his option six months after he leaves the company and sells his shares at once for £25 each. He has no other capital gains in the tax year.

Income tax is payable on the difference between the value of the shares at the date of exercise and at the time of the disqualifying event: £25 - £17 = £8 x 2000 = £16,000.

The CGT charge when the shares are sold during the year 2024/25 will be:

• Sale proceeds: £50,000

• Less cost: (£20,000)

• Less amount chargeable to income tax: (£16,000)

• Chargeable gain: £14,000

• Annual exempt amount: (£3,000)

• Amount chargeable to CGT: £11,000

Higher or additional rate taxpayers will pay CGT at 20% on the gain. For more information about CGT for basic rate taxpayers, please see https://www.gov.uk/capital-gains-tax/rates.