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Granting equity in 

the 

United Kingdom

 

Get to know everything about your taxation and reporting obligations in 

the 

United Kingdom

Introduction

⚠️  The tax information below is an extremely brief summary for standard situations of the referred relationship, and each situation may of course be different from the norm and have its own specificities. ⚠️

A more comprehensive set of information for this country and work relationship is available on Easop.

If you’re looking for more detailed information in this country (or if you are just curious about our global compliance offering and pricing), get in touch with us and we’ll tell you more about it! 💡

Regular employee

EMI

✅ If a company has a local subsidiary in the United Kingdom and comply with the conditions for offering EMI options, they should definitely consider offering stock options qualifying as EMI options to their employees in the United Kingdom.

Because it's so favorable from a tax perspective, it’s subject to more conditions than standard non-qualified stock options.

In a nutshell, conditions for offering EMI options 👇

  • Only “small” companies with a presence in the UK can grant EMI options

  • Grantees must be direct full time employees working, as a rule, more than 25h/week (or, if less, 75% of their working time)

  • The value of all EMI options granted can’t exceed certain individual (£250k) or total (£3M) limits

There are also a few things the company needs to do or may do at the time of grant and every year.  

In a nutshell, what does taxation look like?

  • At grant 👉 No taxation.

  • At exercise 👉 No taxation.
  • At sale 👉 The difference between the sale price and the exercise price is subject to capital gain tax (CGT). There’s a CGT annual exemption.
EoR employees, contractors or advisors in the United Kingdom, can't be incentivized with EMI options.

Employee via EoR

✅ Yes, you can grant non-qualified stock-options (NSO) to EoR employees in the United Kingdom

In a nutshell, what does taxation look like?

  • At grant 👉 No taxation at grant.
  • At exercise 👉 The spread (i.e. the difference between the fair market value (FMV) of the shares at the time of exercise and the exercise price paid by the grantee) will be taxed as salary income.
  • At sale 👉 The sale gain is taxed as capital gain. The tax treatment will differ depending on whether a s431 election had been made at the time of exercise.

Is there a tax-favored scheme ?

💡 A way to reduce taxation for the grantee would be to allow the grantee to “early exercise” the stock options (i.e. exercising stock options that have not vested yet) but early exercises are not always easy to manage from the company’s perspective and on the grantee's side it may increase the risks of paying an exercise price (and taxes thereon) on something which may happen to be eventually worth nothing later down the road.

Contractor

✅ Yes, you can grant non-qualified stock-options (NSO) to contractors in the United Kingdom

In a nutshell, what does taxation look like?

  • At grant 👉 No taxation at grant.
  • At exercise 👉 The spread (i.e. the difference between the fair market value (FMV) of the shares at the time of exercise and the exercise price paid by the grantee) will be taxed as salary income.
  • At sale 👉 The difference between the sale price and the exercise price is subject to capital gain tax (CGT). There’s a CGT annual exemption.

Is there a tax-favored ?

💡 A way to reduce taxation for the grantee would be to allow the grantee to “early exercise” the stock options (i.e. exercising stock options that have not vested yet) but early exercises are not always easy to manage from the company’s perspective and on the grantee's side it may increase the risks of paying an exercise price (and taxes thereon) on something which may happen to be eventually worth nothing later down the road.

Want to know more about equity in 

the 

United Kingdom

?

Discover everything you need to know about taxation and reporting obligations for you and your team in 

the 

United Kingdom

Get in touch