Shares you acquire by exercising a qualifying Enterprise Management Incentives (EMI) option can qualify for Business Asset Disposal Relief even if you hold far less than 5% of the company. The two year qualifying period is counted from the date the option was granted, not the date you exercised it, and throughout that period the company must be trading and you must be an officer or employee. For disposals on or after 6 April 2026 qualifying gains are taxed at 18%, within a £1 million lifetime limit.

Why do EMI shares get special treatment?

For ordinary shares, Business Asset Disposal Relief needs the company to be your “personal company” for the two years before the sale. Under section 169S(3) of the Taxation of Chargeable Gains Act 1992 (TCGA) that means at least 5% of the ordinary share capital and at least 5% of the voting rights, plus a 5% economic interest in profits and assets or in sale proceeds. Most employees who hold options under an EMI scheme never get near those levels.

Section 169I(7A) to (7R) TCGA, introduced by Finance Act 2013, adds two further routes, Condition C and Condition D, which apply only to “relevant EMI shares”. HMRC’s Capital Gains Manual at CG64052 confirms that for disposals on or after 6 April 2013 EMI shares can qualify where the personal company requirement is not met. The 5% test is simply not part of these conditions.

Which shares count as relevant EMI shares?

Under section 169I(7D), shares are relevant EMI shares if you acquired them on or after 6 April 2013 by exercising a qualifying option within the meaning of section 527(4) of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), and the option was exercised within the period that keeps the EMI tax advantages. GOV.UK’s guidance says that period is either 10 or 15 years from the grant, and your option agreement tells you which. Shares acquired in the 2012 to 2013 tax year are covered by transitional rules described at CG64052.

Shares you bought separately, shares from a Company Share Option Plan or from an unapproved option are not relevant EMI shares, so they need the ordinary personal company test.

New shares received in a reorganisation can keep relevant EMI status, but only in two cases set out in section 169I(7F) and (7G): a reorganisation of the company’s own share capital under section 126, or an exchange for shares in another company that meets the EMI rules for a qualifying exchange, including the independence and trading activities requirements. Other reorganisations break the link, although CG64052 notes that an election under section 169Q can trigger the gain at the time of the exchange so that relief can be claimed then. See share for share exchanges for how the normal no disposal rule works.

How is the two year period measured?

Condition C in section 169I(7A) has three parts:

  1. the shares disposed of are relevant EMI shares;
  2. the option grant date is on or before the first day of the two year period ending with the date of disposal; and
  3. throughout that two year period the company is a trading company or the holding company of a trading group, and you are an officer or employee of the company or of a company in the same trading group.

The clock therefore starts at grant. You can exercise on the day of a sale and still qualify, provided the option was granted at least two years earlier. CG64052 gives the example that for a disposal on 17 April 2019 the option must have been granted on or before 18 April 2017. Before 6 April 2019 the period was one year.

If your option replaced an earlier one, for example after a takeover, section 169I(7M) uses the grant date of the original option, and the employment and trading tests look through to the company whose shares were under option at the time.

Condition D in section 169I(7B) covers a company that stops trading. The conditions must be met for two years ending with the date the company ceased to be a trading company, you must have acquired the shares before that date, and the sale must take place within three years of it.

What happens if you leave or the company is taken over before you exercise?

Leaving employment, falling below the working time requirement and the company coming under the control of another company are all disqualifying events under sections 534 and 535 ITEPA. Section 169I(7E) says that if you exercise more than 90 days after a disqualifying event, the shares are not relevant EMI shares at all.

If you exercise within the 90 day window allowed by section 532, section 169I(7Q) measures the two year period to the date of the disqualifying event instead of the date of sale. So a leaver whose option was granted at least two years before they left, and who exercises within 90 days, can still meet Condition C.

The position is different if you exercised while still employed and then left. Condition C then looks at the two years ending with the actual sale, and you must have been an officer or employee throughout that time. Selling a year after leaving will normally fail this test.

How are EMI shares matched if you hold other shares in the company?

CG64052 explains that relevant EMI shares are kept out of the section 104 pool. For disposals on or after 6 April 2013 shares of the same class are identified in this order:

  1. shares acquired on the same day, applying the rule separately to EMI and other shares;
  2. shares acquired in the following 30 days, again separately;
  3. relevant EMI shares, taking the earliest acquired last, which preserves the longest holding period;
  4. the other shares of the class, normally the pool.

This is a variation on the normal share matching rules and can affect which part of a partial sale gets relief.

What does it look like in numbers?

Illustration only. Priya was granted an EMI option on 1 June 2024 over shares worth £10,000 at that date, with an exercise price equal to that market value. She works full time for the trading company throughout. On 15 August 2026 the company is sold; Priya exercises on completion and sells her shares for £110,000. She has made no other disposals and has never claimed the relief before.

Step Amount
Proceeds £110,000
Less exercise price paid £10,000
Gain £100,000
Less annual exempt amount 2026 to 2027 £3,000
Taxable gain £97,000
Tax at the 18% relief rate £17,460

The grant was more than two years before the sale, so Condition C is met even though her holding is tiny. Without relief, if all of the £97,000 fell in the higher rate band, the tax at 24% would be £23,280. Had the option been granted on 1 September 2024 instead, the two year test would fail and the gain would be taxed at the ordinary rates of 18% and 24% depending on her income.

Because the relief rate and the basic rate of capital gains tax are both 18% for 2026 to 2027, the relief now saves tax only on the part of a gain that would otherwise fall in the 24% band. See capital gains tax rates.

What mistakes come up most often?

  • Counting from exercise. The relevant date is grant. Many people assume an exit shortly after exercise is fatal; it is not.
  • Selling well after leaving. Once you have exercised and left, the officer or employee test runs to the sale date.
  • Exercising too late after a disqualifying event. After 90 days the shares lose relevant EMI status for this relief as well as the income tax advantages.
  • Forgetting the trading test. If the company has drifted into investment activity, both Conditions C and D can fail.
  • Ignoring the lifetime limit. EMI gains use the same £1 million lifetime limit as any other qualifying disposal.

How do you claim and by when?

The relief is not automatic. HMRC helpsheet HS275 says the claim must be made in writing by the first anniversary of the 31 January following the end of the tax year of disposal, normally in the Self Assessment return. For a sale in 2026 to 2027 that is 31 January 2029. The lifetime limit has been £1 million for disposals on or after 11 March 2020, and every earlier claim counts against it. Keep the option agreement, the grant date, your employment dates and the exercise records, because HMRC will ask for them if it checks the claim.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.