WHY ARE EMI SHARE PLANS SO POPULAR IN THE U.K.?
4 | SHAREWORKS BY MORGAN STANLEY
2. Tax Relief
EMI tax relief is very generous, so unsurprisingly, this is a major reason for their appeal.
• Companies can offer tax-advantaged share options of up to £250,000 per employee (up to
£3m in total at any one time).
• No Income Tax on National Insurance (NI) is chargeable on either the grant or exercise of
EMI options. This applies, providing:
• the options are exercised within 10 years of grant;
• the exercise price is the market value of the shares at the date the option is granted; and
• the company and employee qualify for EMI throughout the period from the grant to
exercise. If the option is granted at a discount, the amount of the discount is normally
taxed on exercise and NI may be payable.
• Instead, any increase in share value between the grant date and exercise date is subject to
the Capital Gains Tax (CGT) regime rather than income tax rates of between 20%-50%.
• Individuals benefit from a CGT annual exemption (of £12,300 for 2020/21) and thereafter
gains are subject to CGT at the top rate of 20% (or 10% for individuals with income and
chargeable gains below the higher rate income tax threshold of £50,000 for 2020/21).
• It's not just the employee who can benefit either, as employers can claim corporation tax
relief and a saving in NI contributions.
What Factors Make EMI so Popular?
3. Cash Flow Management
All employers want to recruit the best talent and keep it, right? Poor cash
flow is the single biggest reason why four in ten startups fail in their first
five years. So, how can these employers successfully compete in the hugely
competitive labour market while also fighting through economic uncertainty
as a result of the current pandemic?
Well, an EMI is one option as it:
• Allows an employer to supplement basic pay with shares, with the
ultimate objective of them realising some level of gain in the future.
• Defers the cash flow from now to three years' time.
