What exercise price should EMI options have?
By SuLe · Updated 23 June 2026
Set the exercise price at the actual market value (AMV) agreed with HMRC at grant. That keeps exercise free of income tax, so the whole gain from grant to sale is taxed as a capital gain. EMI does let you price below market value, but the discount is then taxed as employment income at exercise — which usually defeats the point.
Key facts
- Pricing EMI options at the HMRC-agreed AMV at grant means no income tax at exercise.
- EMI uniquely allows a below-market exercise price, but the discount is taxed as employment income at exercise.
- Early-stage AMVs are typically low, so a market-value price is often already cheap for the employee.
- Nominal-value strikes are sometimes used where the AMV is low and the company accepts the tax analysis.
- A market-value exercise price keeps more of the growth in the lower-taxed capital-gains regime.
What exercise price should EMI options have?
The standard, most tax-efficient answer is the actual market value agreed with HMRC at grant. Price the options there and the employee pays no income tax when they exercise — the defining benefit of EMI.
Because early-stage AMVs are usually low, a market-value exercise price is often only pennies a share, so it is rarely a barrier for the employee. You get the tax efficiency without making the options expensive to exercise. [More: What is an EMI valuation and how do I get one?]
Anything below that agreed AMV starts to reintroduce income tax, so market value is the default unless you have a specific, advised reason to deviate.
Why set the price at market value?
Because that is the line HMRC draws for the exemption. EMI's headline benefit — no income tax or NIC on exercise — applies only where the exercise price is at least the market value agreed at grant.
Set it there and the employee's entire upside, from the AMV at grant to the eventual sale price, is a capital gain. That is usually taxed far more lightly than employment income, especially if Business Asset Disposal Relief applies.
The neatness is the appeal: agree the AMV, set the price to match, and the tax treatment takes care of itself. [More: What is an EMI share option scheme?]
Can I set the exercise price below market value?
Yes — this is one thing EMI allows that most schemes do not — but it has a price. The discount, measured against the AMV agreed at grant, is taxed as employment income when the option is exercised, and National Insurance can apply too if the shares are readily convertible.
So a below-market exercise price makes the option cheaper to exercise while creating an income-tax charge at exercise. You are trading one cost for another, and usually the market-value route is better.
There are situations where a discount is a deliberate choice, but it should be a considered one, taken with advice, not a default. [More: EMI vs unapproved options — what's the difference?]
Can I use nominal value as the exercise price?
Some companies grant at nominal value — the share's face value, often a fraction of a penny. It minimises the cash the employee needs to exercise, which is attractive for exit-only schemes.
But if nominal value is below the agreed AMV, the gap is a discount, taxed as income at exercise. Where the AMV is itself very low — common at the earliest stage — that discount and its tax may be small, which is why nominal strikes are sometimes used.
The judgement is whether the company accepts the tax analysis and thinks the small charge is worth the lower exercise cost. It is exactly the kind of call to take advice on. [More: What is an EMI share option scheme?]
| Exercise price | Income tax at exercise? | When it is used |
|---|---|---|
| At agreed AMV | None | The standard, most tax-efficient choice |
| Below AMV (discount) | Yes, on the discount | Deliberate, advised cases only |
| Nominal value (below AMV) | Yes, on the gap to AMV | Where AMV is very low and the charge is small |
| Above AMV | None | Rare; makes exercise more expensive |
Worked example
Bea runs Quanta Labs, a biotech-tooling startup, and has agreed an actual market value of £0.20 a share with HMRC. She grants her lead scientist an option over 25,000 shares and sets the exercise price at £0.20 — the AMV — so exercise carries no income tax.
Three years later Quanta is acquired at £4.00 a share. The scientist exercises, paying 25,000 × £0.20 = £5,000, and sells shares worth £100,000. The £95,000 gain is a capital gain, potentially at Business Asset Disposal Relief rates (check the current figure, as they have been changing).
Had Bea instead granted at a nominal £0.001 strike, the £0.199-a-share discount to AMV — about £4,975 across the grant — would have been taxed as income at exercise. The scientist would pay less to exercise but pick up an income-tax charge the market-value price avoided.
Where founders go wrong
Pricing below AMV to look generous.
A discount feels like a bigger gift but creates an income-tax charge at exercise — usually the opposite of what you want.Using a stale AMV.
The exercise price must be measured against a current agreed market value; an out-of-date valuation can leave you accidentally below market.Defaulting to nominal value without the analysis.
A nominal strike below AMV is a discount; only use it where the charge is genuinely small and you have taken advice.Forgetting NIC on readily convertible shares.
A discounted exercise near an exit can attract employer and employee NIC on top of income tax.
Related questions
What is the best exercise price for EMI options?
Usually the actual market value (AMV) agreed with HMRC at grant. Setting the exercise price at AMV means no income tax when the employee exercises, so the whole gain from grant onwards is a capital gain. It is the standard, most tax-efficient choice for EMI. [More: What is an EMI valuation and how do I get one?]
Can EMI options have an exercise price below market value?
Yes — EMI uniquely allows it — but there is a cost. The discount to the agreed market value at grant is taxed as employment income when the option is exercised, and possibly National Insurance too. You trade a lower cost to exercise for an income-tax charge at exercise. [More: EMI vs unapproved options — what's the difference?]
Can I set the exercise price at nominal value?
You can, and some companies do, but if nominal value is below the agreed market value the difference is taxed as income at exercise. Where the AMV is itself very low, the discount — and the tax — may be small, but you should take advice on the analysis before doing it. [More: What is an EMI valuation and how do I get one?]
What does the employee actually pay to exercise?
The exercise price multiplied by the number of options exercised. A lower exercise price means less cash to find at exercise, which matters for employees exercising into illiquid shares — but a below-market price brings an income-tax charge that a market-value price avoids. [More: What happens to share options when an employee leaves?]
Does the exercise price affect capital gains tax later?
Yes. The gain on sale is broadly the sale price less the amount already taxed (the exercise price, plus any discount taxed as income). A market-value exercise price keeps more of the growth in the capital-gains regime, which is usually the lower-taxed outcome. [More: What is an EMI share option scheme?]
The exercise price is a one-number decision with a big tax tail: set it at the agreed market value and exercise is clean, set it below and you hand your team an income-tax charge you meant to avoid. A SuLe solicitor can align the price with your valuation and the tax analysis. Book a free call about your option scheme and price your options right the first time.
Keep reading: What is an EMI valuation and how do I get one? · What is an EMI share option scheme? · EMI vs unapproved options — what's the difference? · What is a section 431 election and why does the 14-day deadline matter? · How do I set up an EMI scheme? · What is a CSOP and when does it beat EMI?
Primary sources: GOV.UK — Enterprise Management Incentives (EMIs)
