Insights

Enterprise Management Incentive (EMI) option schemes are a popular and tax-efficient way for companies to offer share options to their employees.

Following changes announced in the Autumn Budget 2025, the qualifying criteria for EMI option schemes were expanded from 6 April 2026. These changes mean that more companies may now be eligible to qualify for EMI options.

This article explores what an EMI option scheme is, the tax benefits and the qualifying conditions that companies must meet to be eligible. 

What is an EMI Option Scheme?

An EMI share option is a type of employee share scheme where employees are given the option to buy shares at an agreed price, usually on the occurrence of either an exit or once certain time or performance targets have been met.

The company has discretion on which employees participate in an EMI option scheme and can grant shares worth up to £250,000 to each employee. Once that limit is reached, no further options can be granted to that employee for a period of three years.

There are also limits on the total value of EMI options a company can grant. A company is not permitted to grant EMI options over shares with a total value of more than £6 million, or £3 million if the options were granted before 6 April 2026.

The main point to note is that, in order to qualify for favourable tax treatment under EMI option schemes, several conditions  need to be satisfied.

Tax Treatment

If the EMI scheme meets the qualifying conditions, both the company and the employee can receive favourable tax treatment.

For the company, a corporation tax deduction may be available when EMI options are exercised.

For the employee, the following benefits may arise, provided the option qualifies and continues to qualify:

• No tax on the grant of the option.
• No tax on exercise of the option if:
  • it is exercised before the 15^th anniversary of the grant date, or the 10^th anniversary if granted before 6 April 2026;
  • the exercise price was the market value of the shares at time of grant; and
  • a disqualifying event has not occurred;
• On the sale of the option shares, capital gains tax is payable on any gain over the market value at the grant date. Business Asset Disposal Relief can apply if the employee meets the minimum holding period of two years which significantly runs from the date on which the option was originally granted and not from the date on which the option was exercised and the employee first acquired the option shares.

Qualifying Conditions

To qualify for the above tax treatment, the option must adhere to the following qualifying conditions:

Qualifying Company

• The company must be independent. For example, in group companies, the EMI option must be over shares in the parent company.
• If the company has subsidiaries, they must be controlled by the parent company.
• The company’s gross assets cannot be more than £120 million, or £30 million for EMI options granted before 6 April 2026, at the time of grant.
• The company must have less than the equivalent of 500 full-time employees, or 250 full-time equivalent employees for EMI options granted before 6 April 2026, at the time of grant.
• The company, or its subsidiaries, must carry out trading activities. Certain trading activities will not qualify (e.g. property investment, property development, dealing in land, financial trading etc.).
• The company, or its trading subsidiaries, must have a UK permanent establishment.

Qualifying Shares

• Shares must be fully paid up, not redeemable, and made up of ordinary share capital.

Qualifying Employees

• The individual must be an employee of the company, or its trading subsidiary. For example, a self-employed consultant or contractor will not qualify for the tax advantages which only apply if there is an employment relationship.
• The employee must work for the company for at least 25 hours per week, or if less, 75% of their working time (e.g. if part time employees have several jobs, 75% of their working time must be spent working for the company).
• The employee cannot have a material interest in the company, or its trading subsidiary.
  • Material interest means broadly a 30% interest or more in the company or its subsidiaries.

Qualifying Options

• The EMI option terms must be set out in a written agreement and the option cannot be transferable.
• It must be realistic that the EMI Option can be exercised within 15 years of the grant date, or 10 years from the grant date for EMI options granted before 6 April 2026.

Once a company has granted EMI option(s), it is important to continue to monitor the qualifying conditions to ensure the company continues to meet the relevant criteria.

EMI option schemes are flexible, tax-advantaged arrangements which can be useful for incentivising employees within your company. However, for an EMI option to qualify for favourable tax treatment, there are strict conditions that must be followed.

If you are interested in finding out more about EMI option schemes, or employee option schemes more generally, please get in touch with our Corporate team here.