How the taxation of EMI options is affected by disqualifying events

Disqualifying events include the following:

• Employees leaving the company.
• Employees reduce their time spent working for the company (below 75% of their total working time).
• Your company no longer meets the qualifying criteria for an EMI options scheme, such as becoming a public entity or employing more than 250 individuals.
• The EMI scheme or options themselves don't meet the qualifying criteria.

A full list of disqualifying events can be found on the GOV.UK website.

Taxation on EMI options after a disqualifying event

It is important to note that although your EMI income tax treatment gives you a 90-day grace period after your employee leave date to exercise your options before they're cancelled, the Business Asset Disposal Relief on Capital Gains Tax lapses as soon as you leave employment – regardless of whether you have held the options/shares for 24 months from the grant date.

More information on taxation of EMI share options can be found on this page.

Disqualification due to working time requirement

If an employee falls below the working time requirement after the grant of EMI options, the EMI does not fall under disqualification until the end of the tax year in which the change occurred.

However, please note that this does not apply to employees who relocate overseas while still working for the company, as they are disqualified due to no longer being UK tax-paying employees.

For more information aim here.

Taxation after a disqualifying event with a section 431 election

If employees make a section 431 election, which is an election for restrictions on their shares to be ignored, the 90 day period may not necessarily restrict the tax relief on the exercise of shares.

In this case, if options are exercised after the 90 day period, employees will be charged income tax based on the increase in value after the disqualifying event instead of using the AMV to determine tax owed.

For more information on section 431 elections and how they affect the taxation of EMI options after disqualifying events, please consult your local tax professional or this page on the GOV.UK website.