Once a company outgrows EMI or never qualified for it a growth share scheme is usually the next option founders reach for.
It hands out real equity today that only becomes valuable once the business clears a valuation set in advance, protecting the value existing shareholders already built. This guide covers how the mechanics work, when it beats EMI, and how HMRC taxes it once shares change hands.
What Is a Growth Share Scheme?
A growth share scheme creates a separate class of shares that only has value once the company's worth passes an agreed threshold, the hurdle.
Holders own the shares outright from day one, unlike EMI's options, but they don't share in value the business already had before the scheme began.
It sits entirely outside the UK's four tax-advantaged plans (EMI, CSOP, SAYE and SIP), so there's no HMRC pre-approval, no headcount limit, and no cap on the value attached to the shares, less statutory tax relief, in exchange for far more flexibility.
How Growth Shares Work: The "Hurdle" Explained
The hurdle marks the line above which growth shareholders start sharing in the company's value; everything below it stays with the shareholders who built the business first. Take a company valued at £10 million that issues growth shares worth 10% of its share capital.
If it sells three years later for £15 million, the growth shares only participate in the £5 million gained above the original hurdle £500,000 while the remaining £14.5 million goes to the shareholders who held equity before the scheme existed.
Because growth shares are worthless if the company sold on day one, they're usually issued at little or no cost. What matters is getting vesting, "good leaver/bad leaver" terms, and any voting or dividend restrictions written clearly into the articles of association before anything is issued.
Growth Shares as an EMI Alternative for Startups
Growth shares typically enter the picture once EMI stops being enough, the company has outgrown it, or the person being rewarded isn't EMI-eligible. EMI itself was loosened considerably from 6 April 2026:
It's worth checking whether your company now qualifies before assuming you need a workaround.
Even so, growth shares still make sense for rewarding advisors, consultants or directors who don't meet EMI's employee test (25+ hours a week, or 75% of their time); for someone who's already hit the £250,000 individual EMI limit; or for handing over shares immediately rather than an option exercised later.
The two can also be combined, since EMI options can be granted over a growth share class. EMI remains far more common: HMRC's latest figures show 18,570 UK companies running EMI in the tax year ending 2025, about 90% of all companies with a tax-advantaged plan with an average grant worth £13,930 per employee, even as the number of employees receiving EMI grants fell from 50,000 to 42,000 over the same three years.
No such figure exists for growth shares, since they sit outside HMRC's four approved schemes which is exactly why they remain a reliable EMI alternative for startups those schemes don't reach.
Growth Shares Tax Treatment in the UK
Growth shares tax treatment in the UK follows the general Employment-Related Securities (ERS) rules rather than EMI's statutory reliefs, since growth shares sit outside any approved scheme. Most count as "restricted securities" typically forfeited if someone leaves which risks part of the future growth being taxed as income, at up to 45%, instead of as a capital gain.
The fix is a Section 431 election, signed within 14 days of acquiring the shares, with no extensions once that deadline passes.
Once that's sorted, standard Capital Gains Tax applies on sale 18% for basic-rate taxpayers, 24% for higher and additional-rate taxpayers in 2026/27, against a £3,000 annual exempt amount.
Business Asset Disposal Relief can cut that to 18% on the first £1 million of gains, but only if the holder clears a separate test: at least 5% of the ordinary share capital and voting rights, held for two years as an officer or employee, a bar growth shares, often low-vote by design, don't automatically clear.
Non-employee holders, such as investors or advisors who aren't officers, may instead qualify for Investors' Relief, also taxed at 18% from 6 April 2026 with its own £1 million lifetime limit. Employers must also report the award to HMRC via the annual ERS return, due by 6 July.
Growth Shares Valuation: Setting the Hurdle Correctly
Growth shares valuation should start with an independent professional valuer, since getting the hurdle wrong either overpays growth shareholders or leaves HMRC free to challenge it later.
Valuers typically use the Black-Scholes option pricing model (the most common, treating growth shares like a call option), a Current Value Model based on today's valuation, the Probability-Weighted Expected Return Method, or a discounted cash flow approach the right choice depends on how predictable the company's growth looks.
One limitation to flag: HMRC will only pre-agree a growth shares valuation if the shares sit under an EMI or CSOP option. Outside that, there's no formal advance clearance, so a well-documented valuation matters HMRC can and does challenge a hurdle it considers too low after the fact.
Growth Shares vs EMI
The core difference is this: EMI grants options with statutory tax reliefs, while growth shares hand over real shares immediately, taxed under ordinary capital gains rules.
Most startups end up running both EMI for employees who qualify, a growth share scheme layered in for everyone EMI's rules don't reach.
FAQs
1. How does a growth share scheme work?
A growth share scheme creates a new share class that only gains value once the company passes an agreed hurdle. Holders receive shares immediately, usually at low cost, and only benefit once the business sells or is valued above that hurdle.
2. Are growth shares taxed differently to EMI options?
Yes. EMI options carry statutory reliefs no Income Tax or National Insurance on grant or exercise, and Capital Gains Tax on sale. Growth shares tax treatment instead falls under general Employment-Related Securities rules, with no automatic exemption unless a Section 431 election is filed within 14 days, and Business Asset Disposal Relief only if the 5% ownership and voting test is met.
3. Do you need a company valuation to set up a growth share scheme?
Yes, an independent valuation is essential to set the hurdle accurately and defend it if HMRC queries it. A growth shares valuation can only be pre-agreed with HMRC in advance if the shares are granted under an EMI or CSOP option; otherwise there's no formal clearance route.
Also read: Startup Runway Explained: How UK Founders Should Calculate It
Sources: HMRC's Employment Related Securities Bulletin 64 (February 2026), HMRC's Employee Share Schemes statistics (published 3 July 2026, tax year ending 2025), and gov.uk guidance on Capital Gains Tax, Business Asset Disposal Relief and Investors' Relief, current as of the 2026/27 tax year.
The EP+ Editorial Desk covers UK startups, founder stories, and venture capital. All editorial content is independently produced and human-reviewed before publication.
