CG56449 - Enterprise Management Incentives (EMI): examples

Example 1

G was granted a qualifying EMI option to acquire 2000 shares at £10 each, their then market value. She exercised the qualifying EMI option after two years and sold her shares at once for £30 each. The option was exercised after 9 April 2003.

No Income Tax is due when G exercises her option and acquires the shares. (See ERSM30420+).

The CGT calculation when G sells her shares is

Description	Amount
Sale proceeds	£60,000
Less cost*	£20,000
Chargeable Gain	£40,000

*Amount paid for option nil (S149A TCGA92) plus amount paid to acquire shares £20,000 (S144ZA TCGA92). See CG56442.

As G’s option was a qualifying EMI option when she exercised it, if the sale of the shares was before 6 April 2008, the qualifying holding period for taper relief would be two years as there are two whole years between the option grant and the sale of the shares.

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Example 2

H was granted an EMI option to acquire 2000 shares at £10 each, their then market value. She left the company, a disqualifying event, when the shares were worth £17 each. She exercised her option 6 months after leaving the company and sold her shares at once for £25 each. The option was exercised after 9 April 2003.

Taper relief would run from the date H exercised her option and acquired her shares so it could not reduce her gain.

H pays Income Tax on the difference between the value of the shares at the date of exercise and at the time of the disqualifying event, (£25 -£17 = £8) x 2000 = £16,000. (See ITEPA03/S532, ERSM30420+).

The CGT calculation when H sells her shares is

Description	cost / employment income	Amount
Sale proceeds	-	£50,000
Less cost*	£20,000	-
amount counting as employment income**	£16,000	-
-	-	£36,000
Chargeable Gain	-	£14,000

*Amount paid for option nil (S149A TCGA92) plus amount paid to acquire shares £20,000 (S144ZA TCGA92).

**S119A TCGA92; S476 ITEP03 as modified by S572ITEPA03.

See CG56384.