The Chancellor’s Budget 2008 makes changes to the UK’s regime for granting enterprise management incentives (known as EMI options) during 2008. These changes are welcome in certain respects but, as ever, the Chancellor’s sword is double-edged!

On the positive side, prior to 6 April 2008, the market value of the shares that could be put under option for EMI purposes was £100,000 but this has now increased to £120,000 meaning that employers and employees may both benefit to a greater degree from the tax-efficient status of EMI options. This is a welcome change.

The bad news is that business asset taper relief has been abolished (one need only check the national press for recent rumblings regarding changes to the capital gains tax (CGT) regime and “entrepreneurs’ relief” to gauge reaction to this) which takes away one of the most beneficial aspect of EMI options - namely that the effective 10% CGT rate is no longer available, replaced by a flat rate 18% charge on gains made on a disposal of the shares although, in some instances, entrepreneur’s relief may soften this blow.

Another downside to the Chancellor’s changes is that EMI options will not be available to companies with over 250 employees from the date that the Finance Act 2008 is enacted (which is expected to be in late summer 2008). So, if you are considering granting EMI options, or think you might be interested in putting arrangements in place to do so, it might pay to make that enquiry before the Finance Act 2008 is enacted!

Lupton Fawcett LLP has substantial experience of advising on and implementing EMI share option arrangements. The law is stated as at 15 May 2008.

Posted: May 15th, 2008 under Corporate Finance.
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