How Employee Share Schemes Are Taxed

The Two Tax Points Nobody Joins Up

If you have shares from work and you are not sure how they are taxed, the confusion almost always comes from the same place: there are two separate tax points, and most guides only cover one of them.

1. Income Tax and National Insurance at acquisition. When you exercise a non-advantaged share option, or when Restricted Stock UnitsRestricted Stock Unit: A form of employee share pay. The market value when the shares vest is taxed as employment income, and that value becomes your base cost for Capital Gains Tax on later growth. vest, you are taxed on the "money's-worth" - the market value of the shares minus anything you paid for them. That discount is treated as employment incomeEarnings taxed under the employment rules - salary, bonuses, and the discount on employee shares. The acquisition charge on share options and RSUs is employment income, so Scottish Income Tax rates apply for a Scottish taxpayer., so it is taxed like a bonus, through payroll, at your marginal rate.
2. Capital Gains Tax at disposal. When you later sell the shares, Capital Gains TaxCapital Gains Tax: Tax on the profit when you sell or dispose of an asset that has risen in value. On shares it is 18% or 24% in 2026/27, charged only on gains above the annual exempt amount. applies to any growth after the acquisition date - not the whole sale price.

The tax-advantaged schemes - EMIEnterprise Management Incentive: A tax-advantaged share-option scheme for smaller and scale-up companies. Options granted at market value usually carry no Income Tax or NI at exercise, so the whole gain is taxed as a capital gain when you sell., CSOPCompany Share Option Plan: A tax-advantaged option scheme open to companies of any size, with a £60,000 individual limit. No Income Tax or NI at exercise if the options are held for the qualifying period; gains are taxed as capital gains. and Sharesave (SAYE)Save As You Earn (Sharesave): A save-and-buy scheme: you save monthly for 3 or 5 years, then buy shares at a price fixed at the start. There is no Income Tax or NI on exercise, and shares can be moved into an ISA within 90 days. - are valuable precisely because they largely remove the first charge. No Income Tax or NI at exercise means the entire gain travels in the capital-gains lane, where the rates are lower. That single frame - income now versus capital gain later - is the thing to hold onto. Everything below is detail hanging off it.

Which Scheme Are You In?

You cannot work out your tax until you know which type of share you hold. The scheme name is usually on your option agreement or vesting statement; if in doubt, ask your employer's share-plan administrator.

The four tax-advantaged schemes sit in Schedules 2 to 5 of the Income Tax (Earnings and Pensions) Act 2003: SIP (Sch 2), SAYE (Sch 3), CSOP (Sch 4) and EMI (Sch 5). RSUs and unapproved options fall under the general employment-income and securities-option rules instead.

Same Gain, Two Very Different Tax Bills

The clearest way to see why the scheme matters is to run one identical outcome through two treatments. Take shares worth £50,000 that you acquire for a £10,000 exercise price, and later sell for £70,000. Assume a higher-rate taxpayer, listed shares, and the 2026/27 rates.

One honest caveat on the EMI figure. In 2026/27 the Business Asset Disposal Relief rate is 18%, which is the same as the basic-rate CGT rate and only 6 percentage points below the 24% higher rate. So for this taxpayer BADR saves £3,420 on the disposal - real money, but a long way from the 10% rate BADR carried before April 2025. The bulk of the EMI advantage here is avoiding the Income Tax and NI charge at acquisition, not the disposal relief.

The Rule That Stops You Paying Tax Twice

This is the single most valuable thing on this page, and almost no consumer guide states it. When you have already been taxed to Income Tax on the discount at acquisition, your Capital Gains Tax base cost is not just the price you paid for the shares. It includes the amount already charged to Income Tax. This is the base-cost uplift in section 119A of the Taxation of Chargeable Gains Act 1992.

In the worked example above, the RSU holder paid £10,000 and was taxed on a £40,000 discount. Their CGT base cost is £10,000 + £40,000 = £50,000, not £10,000. Use £10,000 by mistake and you would declare a £60,000 gain instead of £20,000 - taxing the £40,000 a second time, once as income and again as a gain.

UK Traps the Big Guides Skate Over

National Insurance only applies to "readily convertible" shares. The Income Tax and NI charge at acquisition assumes your shares are readily convertible assetsShares that can easily be turned into cash - broadly, listed shares or those with arrangements to sell. If share-scheme shares are readily convertible, the acquisition charge attracts National Insurance and PAYE; if not, it is Income Tax through Self Assessment with no NI. - broadly, listed or otherwise easily sold. Listed-company shares and most RSUs qualify, so PAYE and NI apply through payroll. But shares in a small private company that cannot readily be sold are usually not readily convertible: you still owe Income Tax, but through Self Assessment rather than payroll, and generally with no National Insurance. It is a common reason a private-company option is taxed more lightly than a listed one.

Employer's National Insurance can be passed to you. On RSUs and non-advantaged options, many employers use a contractual clause to transfer their own employer's NI - 15% for 2025/26 onwards - onto the employee. It comes off the share value before your own tax is worked out, and it is deductible against the income charge, but it is a real extra cost that catches people out when they compare the headline share value with what actually lands.

The 90-day window to shelter Sharesave and SIP shares in an ISA. When a SAYE contract matures or shares leave a SIP, you can transfer up to £20,000 of them straight into a stocks and shares ISAIndividual Savings Account: A tax-free wrapper. Gains and income on investments held inside an ISA are free of Capital Gains Tax and dividend tax. The annual subscription allowance is £20,000. within 90 days, at their value on the transfer date. Once inside the ISA, all future growth is free of Capital Gains Tax. It is a genuinely valuable, time-boxed move that most employees miss - the same wrapper family covered in our bed and ISA guide.

Share pooling when you sell alongside other holdings. If you already own shares of the same class - bought directly, or from an earlier vesting - your scheme shares go into the same Section 104 poolHMRC's method for valuing shares of the same class bought at different times. All purchases are averaged into one pooled cost per share, used to work out the gain when you sell. and the gain is worked out on the averaged cost, not share by share. Our capital gains tax on shares guide covers how the pool and the 30-day rule interact.

The Scottish Split Inside One Sale

Here is an edge most competitor pages miss entirely. The charge at acquisition is employment income, so for a Scottish taxpayer it is taxed at Scottish Income Tax rates and bands - which run higher at the top than the rest of the UK. But the Capital Gains Tax on the later disposal uses UK-wide rates, because CGT is not devolved. One share-scheme event, taxed under two different rule sets: Scottish income rates now, UK capital-gains rates later.

Two Quick Ones People Ask

Do I need to file a Self Assessment? Often, yes - especially if you sell shares and the gain is above the annual exempt amount, or if the acquisition charge was collected outside payroll (private-company options). Listed-company RSUs taxed fully through PAYE may not need a return for the income charge itself, but the disposal can still trigger one.

How are US company RSUs taxed for a UK employee? The same two-point model applies. The vest is taxed as UK employment income, usually via PAYE at the sterling value on the vest date; the later sale is a UK capital gain, with US-dollar amounts converted to sterling at the relevant dates. Watch for double-tax and any US withholding, and keep the vest-date value - it is your base cost.

Rates and reliefs cited are for 2026/27 and taken from HMRC / GOV.UK and the UKFT tax engine. This is general information, not personal tax advice; share-scheme rules are detailed and the right treatment depends on your exact plan and circumstances.