Autumn Budget 2024 – implications for enterprise management incentive (EMI) option schemes

Whilst the UK Government’s autumn budget did not deliver any particular announcements directly targeting employee share plans, there are a number of significant changes to employment related taxes and capital gains tax. EMI option schemes continue to be the most tax efficient forms of equity plan in the UK despite the changes introduced in the budget.

The biggest increase in tax announced in the autumn budget is the increase in employer’s national insurance (NI), which will rise from 13.8 percent to 15 percent from 6 April 2025. This will mean that employers will have to pay 15p in NI for every £1 paid to an employee. The threshold at which employers start to pay NI will also be reduced from £9,100 per year to £5,000 per year.

EMI share option schemes can be used as a national insurance free reward, benefiting both employers and employees, and further raising the profile of EMI option schemes as the most tax efficient and flexible government-approved share incentive scheme available. Provided the EMI share option qualifies, there is no income tax or NI payable on either the grant or on the exercise of the option. It is worth noting that share options that are not EMI-qualifying and which often transfer the employer NI liability to the option holder will see an increase in tax liability and a resulting reduction in net proceeds on sale of the shares acquired on exercise of the option.

EMI option holders will also be pleased to note that Business Asset Disposal Relief (BADR) is to continue. BADR has the potential to greatly reduce the amount of capital gains tax (CGT) which may be payable on the sale of shares acquired on the exercise of EMI options, subject to a two-year minimum holding period. It should be noted however that the current CGT rate of 10% offered on disposals benefitting from BADR will increase to 14% from next April, then rising to 18% for disposals made from 6^th April 2026 onwards.