Enterprise Management Incentive Options and Entrepreneurs’ Relief

The government has extended the availability of Entrepreneurs’ Relief to employees and officers disposing of qualifying EMI shares on or after 6 April 2013.

Previously Entrepreneurs’ Relief, which reduces the tax rate on capital gains from 18% (28% for higher rate individuals) to a lower rate of 10%, was only available to qualifying individuals on qualifying disposals of shares held for 12 months prior to disposal.  A ‘qualifying individual’ was an employee or officer of a trading company (or a company in the same trading group) who held at least a 5% shareholding in a company, which in turn entitled them to at least 5% of the voting rights in that company.

The new legislation provides that where a qualifying EMI option is exercised on or after 6 April 2012, and the EMI option was granted at least one year before the date of the disposal of the EMI shares, then Entrepreneur’s Relief will be available on a post 6 April 2013 disposal irrespective of the individual’s % shareholding.

As the 1 year qualification period runs from the date of grant as opposed to the date of exercise, it will be possible to exercise the EMI options and sell the shares on the same date, which provides cash-flow and tax advantages.

In order to qualify, the individual must be an employee/officer of the company (or a company in the same trading group) throughout the year ending with the date of the disposal of the EMI shares, and  the shares must meet the requirements of the Enterprise Management Incentive Scheme.

Where companies already have an EMI Scheme in place, it is important to make relevant employees aware of these changes, as this will be important in terms of the timing of exercise and disposal of EMI options and EMI shares.

For those companies considering implementing an EMI scheme for employees, the changes make the scheme an even more attractive tool for recruiting and retaining high calibre employees.

If you require further information on the EMI Scheme, or how the changes will affect you, please contact Paul Ashton.