Share schemes have been around for many years, with successive governments claiming they can help businesses grow and retain and incentivise their employees. However, with the changes to the current scheme, the opportunity to offer employees shares in a format which will appeal to companies and their people seems much more likely to take-off.
Tim Ward, Corporate Partner at BPE Solicitors, thinks this amended scheme may succeed where others have failed to impress. "Whilst not the catchiest title, this share option scheme, Enterprise Management Incentives or EMIs, offers tremendous tax efficiencies for employees and directors of companies that qualify to use them."
These share options schemes get even better from April 2013 which will extend the extremely attractive "entrepreneurs relief" tax treatment to certain EMI option shares. It is now possible for companies to grant options even if a sale is on the horizon. If that is not attractive enough, granting options may also reduce a company's corporation tax bill.
EMI options are well established, and can be granted to employees and directors over shares in private trading companies managed and owned by individuals and changes arriving in April will make tax gains even more valuable.
Up to now entrepreneurs relief (ER) has not been available to option holders and the amazing rate of 10% of capital gains tax was not open to option holders as ER required an employee/director must have held at least 5% of the voting rights and have owned the shares for at least twelve months prior to any sale.
In April however these requirements are being abolished and the 12 month holding period will start to run from the date the option is granted rather than the date of exercise of the option when the share are acquired.
In summary Tim Ward commented "EMI options have always been a very attractive way of retaining staff and motivating them but the entrepreneurs relief requirements made the most attractive tax rate of 10% not available to most EMI option holders and this was frustrating. However, they are now much more attractive and applicable to a wider group of employees"
BPE has wide experience of putting in EMI schemes and other employee incentive arrangements for various well-known local companies and please feel free to give him a call.
These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.