More employees set to benefit from EMI options

More employees set to benefit from EMI options
Osborne Clarke

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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One thought on “More employees set to benefit from EMI options

  1. The proposals are now more favourable than demanding the employee to has hold the shares for 12 months, or more, prior to disposal. This 12 month minimum ownership period has previously been a sticking point given that many EMI schemes envisaged the exercise of the option by the individual only in the immediate run up to a sale of the company.

    The proposals will, if enacted, demand that shares acquired post 6 April 2012, and disposed of post 6 April 2013, need not have been held for the miniumum of 12 months provided that the combined period for which the individual held both the option and the shares is 12 months.

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