Following changes to the legislation for EMI schemes , any EMI options granted after 6 April 2012 may be subject to capital gains tax at only 10% on sale of the shares, i.e. at the entrepreneur’s tax relief rate, because of the removal of the 5% shareholding requirement. Therefore any size of shareholding will be eligible for EMI members. So employees would pay tax at 10% rather than 28% typically.
Also improved is that the requirement to have held the shares themselves for at least 12 months (as is required under the normal entrepreneur’s relief rules to obtain the 10% rate) has been relaxed for EMI scheme members such that the 12 month period runs from the date of grant of the options. Therefore there is no need to actually exercise the options and buy the shares so that the employee can hold them for at least a year before exit.
The result of this is that any EMI scheme member who has been granted options after 6 April 2012 will be able to benefit from the 10% tax rate if they sell their shares after 12 months from the date of grant (and after 6 April 2013 at the earliest).
Quote from the Finance Bill detail:
‘the Government will extend capital gains tax entrepreneurs’ relief to shares acquired through the exercise of EMI share options. Legislation will be introduced to extend the relief to EMI shares by removing the 5 per cent minimum shareholding requirement and allowing the 12 month minimum holding requirement to commence on the date the option is granted. This measure applies to shares acquired on or after 6 April 2012 that are disposed of on or after 6 April 2013.’
If you are seeking to reward and incentivise your employees why not consider an EMI scheme….