Budget 2008 - Enterprise management incentives ("EMI") share options
Companies thinking of offering EMI share options to employees will have three new factors to consider:
- the market value (at the date of grant) of the shares covered by the option is to increase to £120,000;
- the company offering the option must have fewer than 250 employees; and
- new restrictions are being placed on the company’s activities.
The last of these is unlikely to affect most companies (as shipbuilding, coal and steel production tend not to be that prevalent in the SME market) but the first two are potentially of greater relevance.
For companies with over 250 employees is the only recourse now to implement a CSOP (limited to £30,000) and unapproved options top up?
REgards
John
Yes, for companies unable to use the EMI scheme, the only realistic alternative share options schemes are CSOPs and unapproved schemes. There are still the all-employee schemes such as Share Incentive Plans, but these are rarely attractive (or practicable) for most unquoted companies.
I currently am on the EMI scheme, but i will be leaving the company. Will i still qualify for the tax benefits of the scheme?
Derek
EMI share options are only available to employees of the company whose shares are the subject of the options, or, in the case of a group, employees of any qualifying subsidiary of that company. Therefore, when you cease to be an employee the options will cease to qualify for the benefits of the EMI scheme.
Your option agreement may provide that the options themselves cease immediately. If, exceptionally, you are still permitted to exercise the options after you have left the company then you will have up to 40 days to exercise the options with the benefit of the EMI reliefs. After that date the options will be treated as "unapproved" and you will be subject to income tax (and possibly also national insurance) on the difference between the market value of the shares on the date the option is exercised and the amount you pay for them.
You will need to check your option agreement to see what specific rules have been set to cover the cessation of your employment.
Thanks
Cathy
I was lucky enough to be part of an EMI scheme when the company I was in was taken over. Instead of the whole amount being paid out, the new company decided to only pay 2/3 immediately and then to pay the remaining 1/3 of the funds in parts on each subsequent anniversary of the takeover (assuming I stay with the company).
I have heard that even though I only received 2/3 of the funds, I will have to pay tax on the whole amount immediately. Doest this sound correct to you?
Chris
I assume from your email that the terms of the share sale were that you sold all of your shares for cash, albeit some of the cash was deferred. If that is the case then in the year of sale you are liable to pay capital gains tax on the total proceeds receivable, being amounts receive to date plus the future cash.
Thanks
Cathy