UMV vs AMV in an EMI Valuation: What UK Founders Need to Know

Two numbers, one EMI valuation

Every EMI valuation submitted to HMRC contains two share values, not one: the Unrestricted Market Value (UMV) and the Actual Market Value (AMV). They look similar on the page, but they do very different jobs - and confusing them is one of the most common reasons EMI schemes go wrong at exit.

If you are granting EMI options, signing a VAL231 form, or reviewing a draft valuation report, this short guide explains what UMV and AMV are, why HMRC asks for both, and how the gap between them affects your employees' tax position.

What is UMV (Unrestricted Market Value)?

UMV is the price a hypothetical willing buyer would pay a hypothetical willing seller for the shares, ignoring any restrictions attached to them.

In practice, that means stripping out things like:

Forfeiture provisions if the employee leaves

Compulsory transfer clauses (good leaver / bad leaver)

Pre-emption rights and transfer restrictions in the articles

Drag-along and tag-along constraints

Vesting conditions

UMV is essentially the "clean" market value of the share class, as if it were freely transferable.

Why HMRC cares about UMV

UMV is the value HMRC uses to test the EMI individual and company limits:

The £250,000 individual limit on unexercised EMI options per employee

The £3 million company-wide limit on the value of unexercised EMI options

Both ceilings are measured using UMV at the date of grant. Under-stating UMV does not save tax - it risks blowing through these limits without realising it, which can disqualify options from EMI treatment entirely.

What is AMV (Actual Market Value)?

AMV is the market value of the shares taking the restrictions into account. Because the restrictions reduce what a buyer would realistically pay, AMV is almost always lower than UMV for minority holdings in a private company.

The gap between UMV and AMV is expressed as a restriction discount, typically a percentage applied to UMV. For an early-stage UK SME, this discount commonly sits in the 10% to 30% range, depending on the severity of the leaver provisions and transfer restrictions. There is no fixed HMRC tariff: the discount has to be reasoned from the facts of your articles and shareholders' agreement.

Why HMRC cares about AMV

AMV is the number that drives the tax efficiency of the scheme. Specifically, AMV is the benchmark for the exercise price:

If the exercise price is set at or above AMV, employees pay no income tax or NIC on exercise. They only pay CGT (often at the 14% Business Asset Disposal Relief rate, where conditions are met) on the gain at sale.

If the exercise price is set below AMV, the discount is taxed as employment income on exercise, with PAYE and potentially NIC due.

In other words, AMV is what makes EMI the most tax-efficient share scheme in the UK - provided it is calculated and documented properly.

A worked example

Imagine an EMI grant over ordinary shares in a UK SaaS company:

UMV per share: £10.00

Restriction discount (leaver, pre-emption, drag): 20%

AMV per share: £8.00

The founder has three sensible choices for the exercise price:

Exercise price = £8.00 (AMV). Fully tax-efficient. No income tax on exercise. Employee pays CGT on the gain above £8.00 at sale.

2. Exercise price = £10.00 (UMV). Also fully tax-efficient (the price is above AMV), but employees give up more of the upside. Sometimes used to preserve cap-table dilution headroom or for senior hires.

3. Exercise price = £5.00 (below AMV). The £3.00 gap per share is taxed as employment income on exercise. This is rarely the intention, and usually a drafting mistake.

The same logic applies whether you are granting 1,000 options or 100,000. The numbers scale; the principle does not.

Why the UMV / AMV split matters at exit

EMI valuations look like a compliance exercise at grant. They become a commercial issue at exit, when the company is sold and the options are exercised.

At that point, HMRC, the buyer's lawyers, and the employees' own tax advisors will all look at:

Whether a valuation was agreed with HMRC (via the VAL231 process)

Whether the exercise price was at or above AMV

Whether the UMV at grant was within the £250k / £3m limits

A weak or undocumented split between UMV and AMV is one of the first things flagged in buy-side tax due diligence. The consequence is usually a tax indemnity, a price chip, or - in the worst cases - employees losing EMI tax treatment on a multi-million-pound exit. None of that is recoverable after the fact.

We see this pattern repeatedly in our pre-sale valuation work: an otherwise clean deal is held up by a historic EMI valuation that did not properly distinguish UMV from AMV, or applied an unsupportable restriction discount.

How HMRC actually agrees the numbers

For EMI options, you can ask HMRC's Shares and Assets Valuation (SAV) team to agree both UMV and AMV in advance, using form VAL231. Once agreed, the values are valid for 90 days from the date of HMRC's letter, provided no material event changes the company's value in the meantime (a new funding round, a major contract win or loss, an acquisition).

Two practical points:

HMRC agrees the methodology and the figures, not just a single price. The supporting valuation report needs to set out the basis of UMV, the restrictions identified from your articles and shareholders' agreement, and the reasoning for the AMV discount.

HMRC is not a rubber stamp. If the restriction discount looks generous or under-evidenced, SAV will push back, and the timeline can stretch from days into weeks.

For more on the broader process, see our complete guide to EMI share valuations.

Common mistakes we see

In reviewing EMI valuations for incoming clients, the recurring issues are:

Using a single figure for both UMV and AMV. Usually a sign the restrictions in the articles were never read.

Applying a generic restriction discount (a flat 30%) without tying it to specific clauses.

Forgetting preference shares. If investors hold preference shares with a liquidation preference, the ordinary-share AMV can be significantly lower than a simple pro-rata calculation suggests.

Letting the valuation go stale. Granting options on day 91 after HMRC's agreement, or after a material event, invalidates the agreed values.

Setting the exercise price below AMV by mistake, usually because the spreadsheet used UMV as the "headline" price and applied the discount in the wrong direction.

Each of these is fixable at grant. None of them are fixable at exit.

How Optival approaches UMV and AMV

For every EMI valuation we deliver, the report sets out:

The methodology used to derive enterprise and equity value

The waterfall allocation across share classes (where preference shares exist)

The UMV per share, with workings

The specific restrictions identified, clause by clause, from the articles and shareholders' agreement

The restriction discount applied, with the reasoning that supports it

The resulting AMV per share, and a recommended exercise price range

That report is what we submit alongside VAL231, and what sits on file for any future buy-side due diligence. It is also what your accountants and tax advisors need to file the annual EMI return (ERS).

If you are setting up an EMI scheme, refreshing one ahead of a funding round, or cleaning up legacy options ahead of a sale, get in touch for a confidential conversation. Our EMI valuation service is fixed-fee, HMRC-aware, and turned around in days, not weeks.