Tax Bite – EMI Schemes are back on the agenda!

EMI schemes lost some of their appeal with the introduction of Entrepreneurs’ Relief. This is because most EMI option holders would fail the 5% shareholding requirement. This meant that gains on a disposal of shares acquired through the exercise of options would be taxable at 28%.

The rules have now changed so that as long as there is at least a year between grant of the option and disposal the gain would be taxable at 10%. This is therefore an excellent HMRC approved way of incentivising staff.

Example

1. Widget Ltd is valued at £10M.
2. The shareholders decide to grant options over 5% of the company to key members of staff.
3. Although 5% of the company is worth £500,000 pro rata, HMRC will typically agree a value of £100,000 because the options relate to small minority holdings.
4. 2 years later company is sold for £15M.
5. Shareholders enjoy a windfall of £650,000 (5% of £15M less exercise value of £100,000).
6. This gain will be taxed at only 10%!
7. Additionally the company will enjoy a tax deduction of £650,000.

There are qualifying criteria for EMI options to apply but most owner managed businesses should qualify.

 

Search

Archives

Sign up for our newsletter

Interested in receiving the latest tax planning ideas?

Sign up to Tax Bites – our weekly update offering practical but effective tax saving tips.

Contact Us

You can use this form to request us to give you a call or if you prefer just leave us a message. Please be sure to leave us a contact number or email address for you and we will get back to you as soon as we can.

Phone
0161 927 9277

Email
office@forbesdawson.co.uk

Address
Fairbank House
Ashley Road
Altrincham
Cheshire
WA14 2DP