EMI share schemes account for over 90% of all employee shares schemes in the UK. EMI options can be granted to eligible employees and directors. If the exercise price is at least equal to the actual market value of a company’s shares on the date options are granted (which is generally agreed with HMRC in advance), there will be no income tax to pay on grant or on exercise and if the options are held for at least 2 years before a sale, capital gains tax will be payable at a reduced rate of 10%. For this reason, EMI schemes are the go-to share scheme for most fast-growth businesses.

Some companies can’t grant EMI options because of the nature of their business, the number of employees they have or the value of their gross assets. In these circumstances, CSOPs can be a good alternative to, or can operate alongside, EMI schemes. Eligible employees can be granted options up to a maximum market value of £30,000 each, with no income tax to pay on grant or on exercise as long as the options are exercised after 3 years. On a sale, capital gains tax will be payable at the usual rate of 20%.

Growth share schemes are increasing in popularity amongst businesses of all sizes that want to provide employees with a share of the value of a company only above a certain sale price. These schemes are very flexible, and it is even possible to grant tax-advantaged options over growth shares in certain circumstances.

We regularly advise foreign companies with UK subsidiaries on setting up subsidiary share option plans (‘sub-plans’) to grant options over the shares in their parent companies to employees and non-employees in the UK.