The first and main benefit of EMI is the array of tax benefits for employees. There is no income tax to pay when the options are granted, or when the options are exercised to buy the shares. When an employee sells their shares, they will keep 90% of any profit. Without EMI, they might keep less than half of it.
When someone sells the shares that they’ve acquired via EMI options, they qualify for Entrepreneurs’ Relief, so long as at least 12 months (or 24 months from April 2019) have passed from the date of grant to the disposal of the shares.
EMI options can only be granted to employees who are required to work for at least 25 hours a week, or, if less, at least 75% of their working time must be for the company. Employees who have a ‘material interest’ of more than 30% of the share capital before the options are granted are excluded from participation.
How does the EMI scheme work?
EMI stands for Enterprise Management Incentive scheme. An EMI scheme is a type of tax-advantaged employee share scheme. EMI share incentive schemes allow employers to issue share options (the right to acquire shares in a company) to key employees, incentivising them to work hard and make the business a success.
How long does an EMI scheme last?
These are important questions, especially if your EMI option scheme is based on employee options being exercised on an exit event. All EMI option contracts are valued for a timeframe of 10 years only.
What is EMI benefit?
The first and main benefit of EMI is the array of tax advantages for employees. There is no income tax to pay when the options are granted or when they’re exercised to buy the shares. When an employee sells the shares, they will pay only 10% Capital gains tax on any profit.
An Enterprise Management Incentive (“EMI”) scheme is an approved employee share scheme that is available to most trading companies, allowing employers to grant share options to key employee’s tax efficiently, as a reward for their efforts within the business and/or to retain and incentivise key staff.
There is no tax on grant of an EMI option. The exercise of EMI options is not subject to income tax or employees’ National Insurance Contributions, provided the shares are purchased at a price which is at least equal to their market value when the employee was granted the option.
Is EMI tax free?
The EMI paid by you has two components – principal repayment and interest paid. The amount repaid as principal component in the EMI can be claimed as a deduction under section 80C of the Income-tax Act, 1961 for self-occupied property.
A share option is the right to buy a certain number of shares at a fixed price, some period of time in the future, within a company. Employees can generally exercise their share options – ie buy the shares – after a specified period, known as the vesting period.