EMI Share Options: the tax advantages.
Enterprise Management Incentives (EMI) are a tax advantaged share option scheme that can be used to provide an incentive to key staff. The key tax advantage of EMI options in most cases is that no income tax or national insurance will be payable on the exercise of the option. The only exception to this will be where the option exercise price is less than the market value of the shares when granted or where a disqualifying event has taken place before exercise. The market value can be agreed at the outset with HMRC, to ensure that no income tax liability will arise.
Tax on sale of the shares will be charged at more favourable 18% or 28% capital gains tax (CGT) rates. If the options/shares have been held for at least 12 months before the sale then the option holder will be eligible for entrepreneurs’ relief which will reduce the CGT tax rate to 10%, even where a shareholder has less than 5% of the total share capital in the company.
If you would like an initial consultation on setting up an EMI option scheme to attract or retain key staff, please call me on 01284 752313.
Blog entry by: Jeanette Hume.