On Tuesday the Treasury published the draft text of next year’s Finance Bill. As was expected, this contained the specific provisions implementing the change to the scope of entrepreneurs’ relief relating to EMI share options that was announced last year. However, as was not expected, the government has made a surprising but helpful U-turn in relation to one aspect of the proposed reforms.
On the basis of the legislation published yesterday (which is still in draft form) it now appears that the sale of shares acquired pursuant to EMI options exercised on or after 6 April 2012 will be eligible to qualify for entrepreneurs’ relief if a 12 month period has elapsed between the date of grant of the options and the subsequent disposal. This is as opposed to this period running from the date of exercise, as was previously stated by HMRC to be the case.
Since the original announcement about the reforms in the Budget in March there had been some lobbying from various professional bodies for this extension to the scope of the reforms but, until yesterday, no indication had been given that HMRC was prepared to bend to this pressure.
In contrast to the position in respect of other shares, the advantage of these amendments is that in respect of the disposal of shares acquired on exercise of an EMI option (where the option was granted more than a year prior to the disposal), there is no requirement for the seller to hold 5% of the Company’s nominal value and votes in terms of determining their eligibility for entrepreneurs’ relief.
We welcome this change to the legislation as it will mean that EMI optionholders have greater flexibility over when to exercise their options whilst still benefiting from the advantageous entrepreneurs’ relief regime. Before Tuesday’s confirmation of the revised proposals it was likely that many employees would have been unable to take advantage of the regime due to the terms of their option restricting their ability to exercise until immediately prior to a sale or takeover of the company.
The government has sensibly drafted the legislation so that those that have already disposed of shares acquired pursuant to EMI options exercised on or after 6 April 2012 (or who intend to do so before 6 April 2013) will be able to elect to receive entrepreneurs’ relief on the proceeds of such sale, as long as the grant of the EMI option was more than a year before the disposal.