Capital Gains Tax and Employee Share Schemes

Introduction

If you receive shares through an employee share scheme, you may need to pay Capital Gains Tax when you sell them. However, the tax treatment depends on the type of scheme and what you do with the shares. Tax-advantaged schemes like Share Incentive Plans and Enterprise Management Incentives offer ways to reduce or avoid Capital Gains Tax if you follow certain rules.

What is Capital Gains Tax on shares?

Capital Gains Tax (CGT) is a tax you pay on the profit when you sell shares that have increased in value. The 'gain' is the difference between what you paid for the shares and what you sell them for.

Whether you pay CGT on employee shares depends on the type of scheme you're in and how long you hold the shares before selling them.

Share Incentive Plans (SIPs)

Share Incentive Plans allow you to acquire shares in four ways: free shares (up to £3,600 per tax year), partnership shares (bought from your salary before tax, up to £1,800 or 10% of your income, whichever is lower), matching shares (up to 2 free shares for each partnership share), and dividend shares (bought with dividends from your other SIP shares).

Capital Gains Tax treatment

You will not pay Capital Gains Tax on SIP shares if you:

• Keep them in the plan until you sell them
• Transfer them to an Individual Savings Account (ISA) within 90 days of taking them out of the plan
• Transfer them directly to a pension when the scheme ends

If you transfer shares to a pension up to 90 days after the scheme ends (rather than immediately), you may have to pay Capital Gains Tax if the shares increase in value between when you acquired them and when you transfer them.

If you take shares out of the plan and don't transfer them to an ISA or pension within these timeframes, you may need to pay Capital Gains Tax when you sell them.

Save As You Earn (SAYE)

SAYE schemes let you save up to £500 per month and use those savings to buy shares at a fixed price after 3 or 5 years. You don't pay Income Tax or National Insurance on the difference between what you pay and what the shares are worth.

Capital Gains Tax treatment

The same CGT rules apply as for SIPs. You will not pay Capital Gains Tax if you:

• Transfer the shares to an ISA within 90 days of taking them out of the scheme
• Transfer them directly to a pension when the scheme ends

If you transfer to a pension up to 90 days after the scheme ends (not immediately), you may pay Capital Gains Tax on any increase in value during that period.

Company Share Option Plans

These schemes allow you to buy up to £60,000 worth of shares (£30,000 if options were granted before 6 April 2023). If you exercise the option between 3 and 10 years after being offered it, you don't pay Income Tax or National Insurance on the difference between what you pay and the market value.

You may have to pay Capital Gains Tax when you sell the shares. Unlike SIPs and SAYE schemes, there is no exemption for keeping shares in the plan or transferring to an ISA.

Enterprise Management Incentives (EMI)

EMI schemes are available to smaller companies with assets of £120 million or less and fewer than 500 full-time employees. (Before 6 April 2026, the limits were £30 million in assets and fewer than 250 employees.)

You can receive share options up to £250,000 in value over a 3-year period. You must work at least 25 hours per week or 75% of your working time for the company.

Tax treatment

You won't pay Income Tax or National Insurance if you buy shares for at least their market value when the option was granted and exercise the option within 10 or 15 years (check your option agreement for your specific timeframe).

If you received a discount on the market value when the option was granted, you'll pay Income Tax and National Insurance on that discount.

You may have to pay Capital Gains Tax when you sell EMI shares. There is no specific CGT exemption for EMI shares as there is for SIPs or SAYE.

Companies in certain excluded activities cannot offer EMI schemes. These include banking, farming, property development, legal services, and shipbuilding.

Employee shareholder shares

Employee shareholder status requires you to own shares worth at least £2,000 when you received them. The first £2,000 worth of shares acquired before 1 December 2016 was usually free from Income Tax and National Insurance.

Capital Gains Tax treatment

Special CGT rules apply depending on when you signed your employee shareholder agreement:

Before 17 March 2016: You only pay Capital Gains Tax on shares worth over £50,000 when you received them.

From 17 March 2016: You only pay Capital Gains Tax on gains over £100,000 made during your lifetime from employee shareholder shares.

You won't get tax relief if you or a connected person (business partner, spouse, or family member) has 25% or more voting rights in the company.

Non-tax advantaged share schemes

Some employers offer shares outside tax-advantaged schemes. These might be 'acquisition schemes' (giving free or discounted shares) or 'share option schemes' (allowing you to buy shares).

These schemes don't have the same tax advantages. You'll pay Capital Gains Tax on any gains when you sell, subject to the normal annual CGT allowance and rates.

Transferring shares to an ISA

You can transfer up to £20,000 of shares from SAYE or SIP schemes into a stocks and shares ISA, if your ISA provider agrees. The transfer must happen within 90 days of taking shares out of the scheme.

Shares held in an ISA are exempt from Capital Gains Tax on any future gains. This is a tax-efficient way to hold shares from employee schemes.

Sources

• Tax and Employee Share Schemes
• Capital Gains Tax and employee share schemes (Self Assessment helpsheet HS287)

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.