EMI schemes ― employee tax consequences

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Employment Tax

Guidance

The tax rules around enterprise management incentive (EMI) schemes are extremely generous and were introduced to enable small higher risk trading companies to recruit or retain key employees. The principal advantage is that where the option price is not less than the market value of the option shares at the time of grant, no income tax charge arises when the option is exercised. Therefore, if there is substantial growth in value of the shares between grant and exercise, that growth is liable only to CGT when the shares are sold. By contrast, if the option is non-qualifying, an income tax charge arises on exercise based on the market value of the shares at that time. CGT Business Asset Disposal Relief is usually available for disposals of EMI shares and so the rate of CGT is reduced to only 10% (14% for 2025/26), making the scheme even more attractive. See the Business asset disposal relief guidance note. This note considers the rules on a step-by-step basis.

Grant of option

There is no income tax or NIC

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Oliver John

Director at Azets , Employment Tax

Oliver John was previously at Mazars for just more than five years where he provided tax and share valuation advice to a range of businesses with regards to share transactions. In his role as director at Azets, Oliver will continue to share tax advice with clients over the life of a business, from companies looking to raise capital to shareholders looking to exit.

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