More employees set to benefit from EMI options
Although Budget proposals announced earlier this year indicated there would be an increase in the number of people eligible to claim Entrepreneur’s Relief, the draft proposals released this week have extended the eligibility criteria much further than many believed they would. According to the draft proposals, an employee who disposes of shares obtained under an Enterprise Management Incentive scheme can claim Entrepreneur’s Relief on any benefit they obtain, providing they have held the shares for the twelve month qualifying period.
The draft proposals also state that this extension of eligibility for Entrepreneur’s Relief will apply regardless of whether the shares where obtained at market value or at a discounted rate. Shareholders must normally hold at least 5% of the company’s shares to qualify for Entrepreneur’s Relief so this amendment will result in an increase in the number of people eligible to claim Entrepreneur’s Relief and reduce their tax liability.
In addition to this, the draft legislation proposes to extend the 40 day limit to 90 days for employees to exercise EMI options after a disqualifying event. Companies who have existing all-employee share schemes may also benefit from the draft legislation which introduces a number of changes intended to simplify the administration of such schemes. Another advantage for entrepreneurial businesses under the draft legislation is the proposal to allow employees who give up some employment rights to benefit from a payment of £2,000-£50,000 without capital gains tax.
If enacted, the proposed changes will enable more people to claim tax reliefs thus saving people money. However, the law and regulations regarding taxation can be complex so individuals are advised to seek specialist advice before buying or selling shares, even if the shares are obtained under an Enterprise Management Incentive scheme. With more employees benefitting from Entrepreneur’s Relief, it is possible that more businesses will launch Enterprise Management Incentive schemes. By obtaining expert advice and ensuring they fulfil the eligibility criteria, companies can successfully launch schemes which incentivise their staff and enable employees to qualify for tax reliefs as well as benefitting from a new standard of flexible employment rights.
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