Measure
The government has announced a number of changes to Company Share Option Plan (CSOP) and Enterprise Management Incentive (EMI) tax advantaged employee share schemes together with the disguised remuneration rules and Business Asset Disposal Relief (BADR).
The CSOP option limit will be increased from £60,000 to £120,000 per employee and will apply separately from the EMI option limit of £250,000 per employee, enabling qualifying companies to grant options over shares with a value of up to £370,000 per employee combined, measured at the date of option grant. The maximum life of CSOP share options will be extended to 15 years and the CSOP scheme will be rebranded EMI2 to emphasise its role as a follow-on scheme from EMI.
The maximum period for certain exceptions to apply under the disguised remuneration rules will be extended to 15 years. The individual lifetime limit on gains qualifying for BADR, which normally applies where EMI share options have been held for at least two years, will be reduced from £1 million to £500,000. Companies where there are arrangements for the company to come under the control of an Employee Ownership Trust (EOT) will qualify to grant EMI share options and the EMI exercise window following disqualifying events will be extended from 90 days to 180 days.
Companies wishing to grant CSOP and EMI share options and employees benefiting from these share options, plus companies operating employee share plans in conjunction with a third party such as an Employee Benefit Trust (EBT).
The changes will take effect from 6 April 2027.
The increased CSOP/EMI2 limit, its separate application from the EMI limit and the extended CSOP/EMI2 option life are welcome changes that will give companies greater flexibility to attract, retain and incentivise employees.
However, the reduction in the BADR lifetime limit appears to also apply to EMI shares, which may concern early-stage, fast-growing companies that rely heavily on EMI share options as a key component of their remuneration packages. We believe businesses would welcome further measures to carve out gains on EMI shares from this reduction. The other changes, particularly the extended exceptions from the disguised remuneration rules and the increased 180-day exercise window following EMI disqualifying events, should provide greater flexibility, though businesses will need to consider the detailed impact once the Finance Bill clauses are available.
Companies should review their existing EMI and CSOP plan rules and template option agreements to determine whether these changes will apply automatically or whether amendments will be required to the plan rules to take advantage of the changes.