With effect from 6 April 2026 the Government has made significant changes to EMI share options with a view to assisting mid-market and scaled up businesses.
EMI options were previously aimed at smaller trading businesses (such as start-ups) and, due to their tax efficiency, they have been very successful in assisting companies to attract, retain and motivate employees. Larger trading companies have therefore been unable to offer EMI share options and for smaller trading companies, as those businesses grow, the limits placed on the granting of EMI options have often prevented such businesses from granting EMI options to employees that join the business at a later stage in its development, at a time when attracting talent is vital for its expansion.
EMI options are considered to be the most tax efficient equity incentive available to companies with the principal benefits being (provided certain conditions are met):
- no income tax or National Insurance contributions payable on the grant or exercise (if granted with a market value exercise price); and
- gains made on the sale of shares obtained following the exercise of the options are subject to capital gains tax (CGT) (the rates for which are considerably lower than income tax). It may also be possible for Business Asset Disposal Relief to be claimed in respect of such gains and if so, this will reduce the CGT rate from 24% to 18% on the first £1m of qualifying gains (assuming the lifetime limit of £1m has not been exceeded).
The key changes are as follows -
- Companies with gross assets of £120m can now grant EMI options. Formerly, the limit was £30m.
- The maximum employee limit has increased to 500, up from 250 previously.
- The limit on the total value of shares (at the date of grant) that can be awarded has increased from £3m to £6m.
- The exercise window has been extended from 10 years to 15 years. This extended exercise period can also apply retrospectively to existing EMI options that have not expired or been exercised, and existing option terms can be amended without losing the tax advantages.
These changes will allow EMI share options to be opened up to a greater number of trading companies and their employees and will enable employees to benefit from any increased growth in value of the shares under option in a tax efficient manner.
The limit on the market value of the shares (at the date of grant) that can be put under option for an individual remains unchanged at £250,000.
With effect from April 2027, the requirement to notify HM Revenue & Customs about EMI options will be removed which will reduce employers' compliance requirements.
For companies that are too large to grant EMI options or that cannot grant further EMI options to particular employees, there are other tax efficient ways to incentive such employees, including Company Share Option Plans. We have extensive experience in designing and implementing share option plans and can advise and assist you to implement the share option plan of your choice.
If you have any queries concerning share options and would like advice, please contact our tax specialists.
