Enterprise Management Incentives (EMIs) approved by HMRC must satisfy the following criteria:
Capital Gains Tax
In either of the above cases, once the employee has exercised their option and bought the shares, when they subsequently dispose of or sell the shares, capital gains tax may be payable subject to capital gains tax rates and their capital gains tax allowance.
Excluding Business Activities
Firms that are not permitted to offer EMIs are:
Alison works for Combined Tuna Fish & Whistle Limited. Its market capitalisation is £29m. The firm qualifies to offer EMIs.
Alison is offered share options over a 3-year period
Alison exercises her options and buys all the shares offered
5 years later, the share price has increased to £1.50. Alison paid £250,000 and owns 383,333 shares. 383,333 X £1.50 = £574,999.50. A gain of £324,999.50.
When Alison comes to sell/dispose of some or all the shares, capital gains tax will be payable at the current tax higher capital gains tax rate for shares of 20%. She has made a huge ‘net’ profit. Don’t forget, if more than £250,000 options had been granted within a 3-year period or if options were granted at a discount on market value, then income tax and national insurance would have been payable.