What are the tax advantages of EMI?

Tax advantages for employees with EMI options

When shares from an EMI option are sold, any capital gain above the annual exempt amount of £3,000 is taxed at 10% (on the first £1 million of lifetime gains) provided the EMI option has been held for at least two years. This is lower than the 20% tax rate normally payable on capital gains as EMI option holders receive Business Asset Disposal Relief (BADR, formerly called Entrepreneur’s Relief).

There are no other taxes nor National Insurance contributions to pay, provided the exercise price (ie the price the shares are bought using the EMI option) is the same as the share price which was agreed with HMRC.

Tax advantage for the company with EMI options

The company will also have a corporation tax deduction in the accounting period of the exercise date of the EMI option which is equal to the unrestricted market value of the option shares as at the option grant date, less the exercise price.

In the context of a sale of the business, the sale price of the business could be increased to reflect the future corporation tax deduction as a deferred tax asset.

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