Unapproved Share Options Tax Calculator
Income tax, employee NIC & employer NIC on non-tax-advantaged share option exercise
Last updated: March 2026
Unapproved Share Options Tax Calculator 2026
Calculate income tax, employee NIC and employer NIC on non-tax-advantaged (unapproved) share option exercise. Also shows the post-exercise CGT position on eventual sale.
Tax Rates on Unapproved Share Options 2026/27
| Tax / Charge | Rate | Notes |
|---|---|---|
| Income Tax (basic rate) | 20% | On gain stacked on other income up to £50,270 |
| Income Tax (higher rate) | 40% | On gain between £50,270 and £125,140 |
| Income Tax (additional rate) | 45% | On gain above £125,140 |
| Employee NIC | 8% / 2% | 8% up to UEL (£50,270); 2% above UEL |
| Employer NIC | 13.8% | No upper limit — on full gain |
| CGT on subsequent sale (basic) | 18% | From 30 Oct 2024 |
| CGT on subsequent sale (higher) | 24% | From 30 Oct 2024 |
Expert Guide: Unapproved Share Options in the UK
1. What Are Unapproved Options and Why Do Companies Use Them?
Unapproved (non-tax-advantaged) options are employee share options with no HMRC approval. Any company can grant them, in any amounts, to any employees or directors. Unlike EMI, there are no gross asset limits, employee count caps, or individual value limits. They are used by large quoted companies (where EMI is unavailable), companies that have exceeded EMI limits, and startups that cannot qualify for EMI.
The downside is full income tax and NIC on exercise. The upside is total flexibility: vesting schedule, exercise price (can be below market value at grant — though this creates tax on grant for certain restricted securities), performance conditions, and leaver provisions are all entirely at the company's discretion.
2. EMI vs Unapproved Options — The Tax Difference
EMI options (Enterprise Management Incentive): gain at exercise is free from income tax if options were granted at or above market value at grant. CGT applies on disposal from the grant date (not exercise). With Business Asset Disposal Relief (10% CGT rate) on a qualifying sale, the effective total tax is 10% of the total gain. Employee NIC does not apply.
Unapproved options: income tax + employee NIC + employer NIC (possibly) on the full gain at exercise. CGT only on post-exercise growth. For a higher rate taxpayer, total effective tax on exercise can be 53.43% (40% IT + 2% employee NIC + 13.8% employer NIC if transferred).
EMI company requirements: gross assets ≤ £30m; fewer than 250 employees; trading company (not investment). Individual limit: options valued at ≤ £250,000 per employee.
3. HMRC Reporting — Employment Related Securities (ERS)
All unapproved share option events must be reported via the HMRC Employment Related Securities (ERS) online service by 6 July each year. Reportable events include: grant of options, exercise, lapse, cancellation, variations, and any releases. The employer must register the share scheme with HMRC first.
Penalties: Automatic £100 for late filing after 6 July. £300 if still outstanding after 3 months. £300 more if still outstanding after 6 months. £600 further after 9 months. Up to £5,000 per scheme for deliberate defaults. HMRC can also open an enquiry into the option terms and valuations.
4. Employer NIC Joint Election — Transferring the 13.8% Charge
An employer and employee can jointly elect under s431 ITEPA 2003 to transfer all or part of the employer NIC liability (13.8%) to the employee. This election must be made before exercise. The transferred employer NIC is collected via PAYE alongside the income tax and employee NIC.
From the employee's perspective, the total tax charge rises substantially. However, HMRC's position is that the amount paid by the employee as transferred employer NIC can, in certain circumstances, be deducted as an employment expense — reducing the income tax base. Always take professional advice. From the employer's perspective, removing the NIC liability improves the company's cost model for option grants, particularly pre-IPO.
5. Market Value for Unquoted Shares
For unquoted (private) companies, there is no readily available market price. The company must agree an exercise price with HMRC's Shares and Assets Valuation (SAV) team prior to grant. HMRC will value shares using discounted cash flow, earnings multiples, net assets, or industry-specific methods.
HMRC will resist artificial suppression of values. Common pitfalls: issuing options just before a funding round (round price implies higher value); option terms that give economic interest equivalent to existing shares; minority discount arguments challenged by HMRC. Once a Valuation Agreement is reached, it protects both the company and the employee from challenge on grant-date value.
6. Leaver Provisions and Good Leaver / Bad Leaver Rules
Unapproved option plans typically include leaver provisions distinguishing between good leavers (resignation, retirement, ill-health, redundancy, death) and bad leavers (dismissal for cause). Good leavers may retain vested options and sometimes benefit from time-accelerated vesting. Bad leavers typically forfeit unvested options.
Where lapsed options are replaced or the exercise price is varied, HMRC may treat this as a new grant. Similarly, cash settlement of options on a company sale (rather than actual share acquisition) is still subject to income tax and NIC in the same way, as it represents employment-related consideration. Tax on a cashless exercise (immediately sold) is handled via PAYE with no additional CGT if sold at exercise value.
7. Optimising Your Tax Position on Unapproved Options
Exercise in tranches: If you have a large gain, consider exercising over two tax years to avoid being pushed into the additional rate (45%). Time exercises to ensure other income is lower (e.g. year of reduced bonus).
Bed and ISA after exercise: Immediately sell shares acquired on exercise and repurchase inside a Stocks and Shares ISA. Future growth on these shares is then CGT-free. The CGT position at exercise is nil (sale at market value = CGT base cost) so no CGT arises on the immediate sale.
Pension contributions: Making a large pension contribution in the same tax year as option exercise can reduce your adjusted net income, potentially restoring lost personal allowance and reducing the effective IT rate on the option gain.
8. Options Over Shares in the Employing Company vs Parent
Options are most commonly granted over shares in the employer company or a group parent. Options granted over shares in a parent company by a UK subsidiary are still subject to UK income tax and NIC at exercise, and the UK subsidiary must operate PAYE even though it does not itself have shares to transfer — a recharge arrangement between group companies typically funds this.
Where an employee is internationally mobile (worked in different countries between grant and exercise), the UK portion of the gain is calculated by apportioning over the service period in UK employment. HMRC guidance on internationally mobile employees and share options is detailed in the EIM guidance and ITEPA 2003 sections 41A–41D.
Worked Examples: Unapproved Option Tax 2026/27
Example 1: Higher Rate Taxpayer, No NIC Election
Grant price: £1.00. Exercise MV: £4.50. 10,000 options. Other income: £50,000. Gain = £35,000 (10,000 × £3.50). Stacked on £50,000 income = all in higher rate band (above £50,270). Income tax 40% = £14,000. Employee NIC 2% (above UEL) = £700. Employee total = £14,700. Employer NIC 13.8% = £4,830. Net to employee = £35,000 − £14,700 = £20,300 (58% of gain).
Example 2: Basic Rate Taxpayer Straddling Bands
Grant price: £1.00. Exercise MV: £3.00. 5,000 options. Other income: £40,000. Gain = £10,000 (5,000 × £2.00). Basic rate band remaining = £50,270 − £40,000 = £10,270 — entire gain in basic rate. Income tax 20% = £2,000. Employee NIC 8% on £10,000 (all below UEL) = £800. Total = £2,800. Net = £7,200 (72% of gain).
Example 3: Post-Exercise CGT on Sale
Following Example 1, the employee holds 10,000 shares with a base cost of £4.50/share (total £45,000). Two years later shares are worth £6.00. Sale proceeds = £60,000. CGT gain = £60,000 − £45,000 = £15,000. Less AEA £3,000 = taxable gain £12,000. At 24% (higher rate) = £2,880 CGT.
Expert Reviewed — Reviewed by chartered tax advisers specialising in employment-related securities. Rates verified against ITEPA 2003 and HMRC ERS guidance. Last verified: March 2026.
Official Sources
Disclaimer: This calculator provides estimates based on published HMRC rates. It does not constitute professional tax or legal advice. Actual tax will depend on precise dates, other income sources, PAYE coding, and specific option plan terms. Consult a qualified employment tax adviser for options exercise planning.