The Enterprise Management Incentive (“EMI”) regime allows small, higher risk companies to grant tax advantaged share options to their employees.
The Government has published draft clauses to be included in the Finance Bill 2013 to extend capital gains tax entrepreneurs’ relief to employees acquiring shares on the exercise of EMI options, even if they do not hold 5% of a company’s shares. This represents a useful relaxation of the rules, since most employees with EMI Options do not hold enough shares in the Company under the normal rules applying to entrepreneurs’ relief in order to enjoy the relief.
The draft legislation is unexpectedly more generous than anticipated, and may be of significant benefit to senior executives and employees in private companies.
The new provisions will allow employees to dispose of shares acquired on the exercise of qualifying EMI options after 6 April 2013, and to claim entrepreneurs’ relief for the gains they realised, provided a 12 month holding period is satisfied. This means that holders of EMI options can benefit from a CGT rate of 10%, instead of the unusual 18% or 28% rate (as applicable).
The relief will apply to EMI Options granted on or after 6 April 2012, provided that the EMI shares are disposed of on or after 6 April 2013.
The reasons to be positive:
The normal requirement to hold 5% of the voting shares of the company in order to qualify for entrepreneurs’ relief does not apply to shares acquired on the exercise of EMI options. This will allow companies to grant EMI options of classes of shares that do not have voting rights in addition to those which may have limited capital dividend rights.
The 12 month holding period begins on the day the option is granted, not the date on which the shares are acquired, so this will enable the holders of “exit only” options exercised in connection with the sale of the company to benefit from entrepreneur’s relief.
How can we help?
- If you do not have an existing EMI scheme we can assist in determining whether your company qualifies and implementing any EMI scheme.
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