Restricted securities and EMI options

Restricted securities and EMI options

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Company is thinking about issuing shares to certain employees. They will be heavily restricted, so value likely to be depressed. Employee will have option of making s431 election or accepting that part of future gain will be subject to income tax.

It has been suggested instead that the company grants options over the shares, exercise price being AMV. There is then an automatic s431 election on exercise. No income tax on exercise, and all future gains capital. Job done - or what have I missed? (Other than the obvious costs of setting up EMI scheme, valuations etc)

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By gbuckell
24th Jul 2015 10:38

EMI options are very attractive again following changes to the entrepreneurs relief rules (12 months runs from date of option, no 5% minimum). The only downside is the lack of ability to pay dividends until options are exercised. The cost of setting up a scheme is likely to be more than a simple arrangement but arguably much of the cost would be incurred anyway (valuation, shareholders' agreement, etc).

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By Ruddles
24th Jul 2015 11:02

Thanks

Point noted about the dividends, but the intention would be to exercise the options more or less immediately. I suppose it is that point that is giving me some doubt as to whether there is any anti-avoidance that may bite.

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By MBK
24th Jul 2015 13:03

There's no problem with immediate exercise

And if the grantees are happy to pay the AMV for the shares then what you say works just fine.

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