The 90-Day Trap: Why UK Employees of Global Startups Are Working for Free
James spent four years as the third UK employee at a San Francisco AI startup. He joined when the company had 12 people and a slide deck. He built the European customer success function from scratch, hiring a team of 40 across London, Berlin, and Paris. His options represented 0.3% of the company—potentially worth £2 million at the last funding round valuation.
Then he got a better offer. A UK fintech wanted him as VP of Operations. It was his dream role.
He had 90 days to exercise his options.
The exercise price wasn't the problem—that was only £20,000 for shares vested over four years of service. The problem was the tax bill.
UK tax law treats the difference between exercise price and current fair market value as employment income. On £2 million of paper gains, that's roughly £900,000 in income tax—due immediately, on shares he couldn't sell.
James needed to find nearly £1 million in cash to keep equity in a company that might not IPO for another five years. He couldn't.
Four years of work. Zero equity.
The Mechanics of a Broken System
The 90-day post-termination exercise period (PTEP) is standard across the US startup ecosystem. Based on IRS regulations for incentive stock options (ISOs), it made sense decades ago when companies went public quickly and exercise costs were modest.
Today's startups stay private for 10-15 years. Exercise costs have ballooned. And for UK employees, the problem is catastrophically worse than for their American colleagues.
Here's why.
In the US, if you exercise an ISO within 90 days of leaving, you don't pay ordinary income tax at exercise. You pay capital gains tax later, when you sell. The tax event is aligned with the liquidity event.
In the UK, there's no such alignment. For unapproved stock options—which is what UK employees of US companies typically receive—you pay income tax at exercise, not at sale.
Think about what this means. You must:
- Pay the exercise price (often modest—say £20,000)
- Pay income tax on the "spread"—the difference between exercise price and fair market value, at rates up to 45%
- Do both within 90 days of leaving
- On shares you cannot sell
For James, that meant finding £920,000 in cash within three months to buy an asset he might not be able to convert to actual money for years.
This isn't mutualism. It's mutualism with an impossible condition attached.
The Mathematics No One Explains
Let's work through the numbers that HR departments gloss over.
You join a US startup at Series A. Your option grant: 50,000 shares at a £1 strike price. This represents 0.2% of the company. Over four years, you vest everything.
By the time you leave, the company has raised a Series D at a £40 per share valuation. Your options are worth £2 million on paper.
To exercise:
- Exercise price: 50,000 × £1 = £50,000
- Paper gain: 50,000 × (£40 - £1) = £1,950,000
- Income tax on gain (at 45%): £877,500
- National Insurance (if applicable): potentially another £39,000
Total cash required within 90 days: approximately £966,500
To keep equity you earned over four years, you need to find nearly a million pounds. In cash. For shares you cannot sell.
The alternative? Let the options expire worthless. Which is what most startup employees do. According to Carta's Q4 2023 data, 77% of vested options went unexercised—and that's US employees, who face a less punitive tax situation than their UK counterparts.
For UK employees at successful US startups, the amounts left behind are often multiples higher. The combination of shorter exercise windows and immediate tax liability creates an impossible choice.
Why This Matters Beyond Individual Unfairness
The standard response to this problem is: "Well, they should have known what they signed up for." This misses the systemic effects.
UK employees at high-growth US startups are acquiring globally scarce knowledge. They're learning how to scale from 50 to 5,000 employees. They're building international go-to-market motions. They're developing product instincts shaped by working alongside the best.
This is exactly the knowledge the UK startup ecosystem needs. Returnee founders—people who worked at successful companies elsewhere and bring that operational knowledge home—are disproportionately successful when they start their own ventures.
But the 90-day trap prevents the capital transfer that should accompany the knowledge transfer.
Consider the alternative trajectory: James exercises his options (somehow finding the cash), holds them for five years, the company IPOs at 10x his exercise valuation, and he nets £15 million after taxes. He returns to London, angel invests in 30 UK startups, mentors founders, and recycles both knowledge and capital into the ecosystem.
Instead, he took the new job with zero startup equity. The AI company IPO'd two years later. His former options would have been worth £8 million. That capital stayed in San Francisco.
Multiply this by thousands of UK employees at US tech companies, and you're describing a systematic capital drain that policy could easily prevent.
The Biology of Broken Exchange
In nature, mutualism persists only when both parties can access the benefits of cooperation. The cleaner wrasse removes parasites from larger fish. The larger fish provides food to the wrasse. Both benefit. If the cleaner wrasse did the work but couldn't eat the parasites—if there was a 90-day window to consume them or they'd disappear—the mutualism would collapse.
Stock options are supposed to be mutualistic. The employee provides labor, knowledge, and risk tolerance in exchange for equity participation. The employer gets committed talent willing to accept below-market salary for upside potential.
The 90-day window with UK tax treatment breaks this exchange at the moment of highest value. The employee did the work. The employer got the benefit. But the employee cannot access their side of the deal without finding cash they don't have.
This is where policy can restore the mutualism.
In biological systems, cooperation persists because there are enforcement mechanisms. Cleaner fish that cheat get chased away by clients. Vampire bats that refuse to share blood get excluded from future sharing. The cooperation is enforced.
Employment law already enforces cooperation in many domains. Minimum wage. Notice periods. Discrimination protections. Pension contributions. The law recognizes that employer-employee relationships have power asymmetries that markets alone don't correct.
The 90-day exercise window is a perfect candidate for enforcement. It's a term that virtually no employee has bargaining power to change. It systematically harms employees while providing no benefit to employers. And the solution is straightforward.
The Policy Fix That Has No Opposition
Make 5-year (or 10-year) exercise windows mandatory for UK-based employees of any company granting them stock options.
That's it.
"The first question a minister would ask is: 'Who would be upset by this?'" as one Treasury contact put it. The answer is: essentially no one.
Companies granting options don't benefit from the 90-day window. They lose talented employees who feel trapped ("golden handcuffs" aren't golden when they prevent you from ever accessing the gold). Several leading US companies—including Coinbase, Pinterest, Quora, Asana, and Flexport—have voluntarily extended their exercise windows precisely because they recognize it's better for talent acquisition and retention.
Investors don't benefit. The 90-day window doesn't affect their economics at all—the shares exist regardless of whether employees exercise them.
Treasury doesn't lose revenue. Options aren't taxed until exercised regardless. If anything, extending exercise windows increases eventual tax revenue, because more employees will actually exercise rather than letting options expire worthless.
The only argument against mandatory extended exercise windows is: "That's how it's always been done." Which is path dependence, not policy logic.
What Good Companies Already Do
The 90-day PTEP isn't universal. A growing number of companies have recognized its unfairness and changed their policies.
Pinterest extended exercise windows to 7 years for employees with at least two years of service. Coinbase offers the same: 7 years post-termination after 2 years of employment. Quora pioneered the extended window movement with similar terms. Flexport adopted 10-year windows, explaining that "stock options are part of an employee's compensation, and a short exercise window often prevents them from actually receiving that compensation."
Square (now Block) extended exercise periods for all employees who had been with the company for at least 2 years. Asana and Amplitude have also adopted extended windows.
These companies compete fiercely for talent. They extended exercise windows because it's good business—it makes equity compensation actually valuable, which makes it easier to attract and retain employees.
UK policy could make this the default rather than the exception.
The EMI Expansion: Progress, But Not Enough
The UK's 2025 Autumn Budget did expand the Enterprise Management Incentive (EMI) scheme—the tax-advantaged option structure for smaller companies. From April 2026, the employee limit doubles from 250 to 500, the asset threshold quadruples to £120 million, and the exercise period extends from 10 to 15 years.
This is genuine progress for UK companies granting options to UK employees.
But it does nothing for UK employees at US companies.
A UK employee at Stripe, or Databricks, or Anthropic, or any of hundreds of high-growth US companies doesn't get EMI options. They get US options that convert to "unapproved" UK options, with all the tax disadvantages that entails.
The EMI expansion is welcome. But it's addressing a different problem. The 90-day trap affects precisely the employees who are gaining the most valuable scaling experience—those working at the largest, fastest-growing, most successful international companies.
The Second Fix: Align Tax with Liquidity
Beyond mandatory extended exercise windows, there's a second policy change that would further improve the situation: align the tax event with the liquidity event.
Currently, UK employees pay income tax when they exercise options, regardless of whether they can sell the shares. This creates the "dry tax bill"—a tax liability on paper gains that haven't been (and may never be) realized.
The fix: allow employees to defer income tax on option exercises until they can actually sell the shares, similar to how restricted stock units (RSUs) with "double trigger" vesting work.
This wouldn't reduce the total tax paid. It would simply align when tax is due with when the employee has cash to pay it. Treasury gets the same revenue—just at the moment when it's actually possible to pay rather than when it requires finding nearly a million pounds from other sources.
Combined with mandatory extended exercise windows, this would transform UK employee equity from a paper promise into real compensation.
The Ecosystem Effects
When employees can't realize the value of their equity, several downstream effects harm the UK economy:
Reduced talent mobility. Employees stay in jobs they'd otherwise leave because they can't afford to exercise their options. This "golden handcuffs" effect sounds good for employers but actually creates resentful, disengaged employees marking time until they can access their equity.
Capital concentration. Startup wealth that could flow into the UK ecosystem—through angel investment, mentorship, and founding new companies—instead stays in Silicon Valley.
Risk aversion. UK employees become increasingly reluctant to accept equity-heavy compensation, demanding higher salaries instead. This makes it harder for UK startups to compete for talent.
Brain drain, not brain gain. According to the Tech Nation Report 2025, 43% of UK founders are considering relocating their headquarters overseas—primarily to the US. About 25% of late-stage UK startups are actively considering relocating or opening US offices to access better funding. If UK employees at US companies consistently can't benefit from their equity, fewer will take those jobs—and the learning that comes with them—in the first place.
What Needs to Happen
Two policy changes would transform the situation:
Mandatory extended exercise windows (5-10 years) for all option grants to UK-based employees
Tax deferral until liquidity for option exercises in private companies
Neither costs Treasury revenue. Neither harms any stakeholder. Both align incentives so that equity compensation actually compensates.
The US system creates the 90-day trap through tax regulations designed for a different era. The UK system makes it catastrophically worse by taxing paper gains. UK policy can't change US option grant terms—but it can make extended exercise windows mandatory and align tax timing with liquidity.
"There is a reasonable amount that startup employees should be willing to contribute in taxes," as one policy insider noted. "The question is whether we create a system where they actually can contribute that amount—or one where the tax is due before they have any way to pay it."
The Mutualism That Could Exist
Here's what fair employee equity policy would enable:
A UK engineer joins a San Francisco AI company. Over five years, she builds their European engineering team. Her options vest fully, worth £3 million at exit.
When she leaves for a new opportunity, she has 10 years to exercise. Two years later, the company IPOs. She exercises and sells, paying capital gains tax on the actual gain—£720,000 to Treasury.
She uses £1 million to angel invest in 15 UK startups. She joins two boards. She advises three founders. One of her investments returns 20x—she makes £2 million and pays another £400,000 in taxes.
The UK startup ecosystem gets her capital, knowledge, and network. Treasury gets £1.1 million+ in taxes. She creates wealth for herself and others.
Compare this to James: zero tax paid because zero options exercised because he couldn't find £1 million in cash within 90 days.
The policy choice isn't between taxing wealth and not taxing it. It's between making equity compensation work—and generating tax revenue, recycled capital, and ecosystem knowledge—or making it a paper promise that evaporates when employees can't find six figures in cash within three months.
I hope to have played a small part in changing the treatment of UK employees' equity options in privately held US startups.
This article was developed after conversations with contacts at the Treasury, HMRC, and leading representatives in government of the UK startup ecosystem in mid-January 2026.
Related mechanisms: mutualism | cooperation-enforcement | reciprocity-enforcement | path-dependence
Related companies: Coinbase | Pinterest | Revolut | Stripe
Sources
- The Post-Termination Exercise Period (PTEP) for Options Explained - Carta
- Should I Exercise My Vested Stock Options? The Math May Have Changed - Carta (Q4 2023 exercise data)
- Once burned by a 90-day exercise window, this founder is extending stock option windows - Secfi
- Why you only have 90 days to exercise your options when you leave a startup — and why that's changing - Carta
- GitHub - Extended Exercise Windows - List of companies with extended exercise windows
- 90 day exercise windows - Rishi Gupta, Stanford
- Startups Take Note: Pinterest Will Allow Ex-Employees to Keep Vested Stock Options for Seven Years - Founders Workbench
- Expanding the eligibility limits of the Enterprise Management Incentive scheme - GOV.UK
- UK Autumn Budget 2025: EMI Reform Announced - Orrick
- Overview of taxation on UK non tax-favoured share options - Taylor Wessing
- Granting US stock options to UK employees: get it right - Moore Kingston Smith
- Tax implications of share option schemes - SeedLegals
- UK Tech Ecosystem Report 2025 - Tech Nation / Horkan Analysis
- From Startup to Scaleup: Turning UK Innovation Into Prosperity and Power - Tony Blair Institute