What are the tax advantages of EMI?

If the Enterprise Management Incentive (EMI) share options are granted at “market value” then there will be no liability to income tax or national insurance either at the time of the grant or the exercise of the options.

If the options are granted at less than “market value” then there will be a liability to income tax on the difference between the market value at the date of exercise and the date of grant. If the shares are “readily convertible assets” then there may also be a liability to NIC’s.

If the shares have as anticipated increased in value between the date of sale and the date of exercise but they were granted at market value then the increase in value will be chargeable to Capital Gains Tax.

As long as the options have been held for over one year prior to being exercised then the resultant gain will be eligible for Entrepeneur’s relief and therefore taxed at just 10%.

How do you know if the share options were granted at market value?

Your accountant will carry out an exercise to calculate the market value of the shares. This valuation will then be submitted to HMRC for agreement. Once agreement has been reached with HMRC there will be an agreed market value that can be used.

Is it compulsory under EMI to grant share options at market value?

EMI options may be granted at less than market value, this just means that at the time of exercise there would be a liability to income tax chargeable on the key employee.

This liability would be based on the difference between the market value at the date of grant and the share option price.

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