The real economics of EMI, CSOP and unapproved options
27 Aug 2025
2 min read
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That £40,000 you think you’re making from your options when the business eventually sells? You’re not. By the time tax, timing and reality have all had their say, it might be closer to £25,000 - if you’re lucky. Headline numbers are not real numbers.
Haircut 1: Tax - the immediate hit
Options aren't all taxed the same. The wrapper makes the difference.
Example: 10,000 options @ £1 per share, sold at £5 per share = £40,000 headline gain.
| Option Type | UK 2025 Tax | Post-Tax Gain (£) |
|---|---|---|
| EMI (with BADR) | 14% CGT | £34,400 |
| CSOP (>3 yrs) | 24% CGT | £30,400 |
| Unapproved | 47% income tax + employee NICs | £21,200 |
This is your first haircut. EMI is the clear winner. CSOPs are useful if EMI isn’t available. Unapproved? That’s HMRCs pension plan, not yours.
Haircut 2: Time - the slow bleed
Even after tax, future gains are worth less today. £34,400 in three years' time isn’t £34,400 now.
Why? Because money today is always more valuable than money tomorrow. You could have invested it elsewhere, inflation erodes it and there’s always the risk the promised exit never arrives.
Assume:
- Three years to exit
- 10% annual discount rate (opportunity cost, inflation, market risk etc.)
| Option Type | Post-Tax Gain | Net Present Value Today |
|---|---|---|
| EMI | £34,400 | £25,800 |
| CSOP | £30,400 | £22,800 |
| Unapproved | £21,200 | £15,900 |
This is your second haircut. Delay costs real money. Nearly half the headline value has evaporated before you see a penny.
Haircut 3: Reality - the cliff-edge
And that's still assuming the exit happens. Push a three-year exit to five and value erodes further. If the deal collapses, today's £25,800 is worth exactly zero.
Even worse, the business might exit at a value below your option strike price, leaving the options “underwater.” This time the headline gain evaporates even though there is a sale.
This is the third haircut, the cliff-edge one. Options are contingent promises, not cash in your pocket. Until there’s a buyer, liquidity and a sensible price, all you really hold is paper.
Takeaways
Options aren't free money. They're contingent equity and every layer of erosion matters.
- EMI = gold standard. If you can get it, take it.
- CSOP = the back-up. Works if EMI isn’t available.
- Unapproved = last resort. Value can halve before you even start.
Always ask yourself:
- What’s the tax wrapper (is it efficient)?
- When will I actually see the money (does the timing work)?
- What is the execution risk (will an exit really happen and at what price)?
At Burges Salmon, we help high-growth companies, institutional investors and listed businesses design equity plans that deliver what they say on the tin. If you're designing (or redesigning) an option plan or need to explain one, we’d be happy to help.