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HMRC internal manual

Employee Tax Advantaged Share Scheme User Manual

HM Revenue & Customs
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Enterprise Management Incentives (EMI): Company reorganisations: Grant of replacement options

A replacement option has to satisfy certain requirements in order for it to be a qualifying option. The company granting the replacement option does not have to meet the gross assets test or the number of employees test when the new option is granted, but it has to meet the following conditions:

  • The total market value of the shares under the replacement option must be the same immediately after its grant as the market value of the shares under the old option immediately before its release. The total amount payable to acquire the shares must be the same,
  • The £3 million overall limit on the value of shares under option must be satisfied with respect to the new option, but the test is based on the value of shares under option in the old company at the date of the grant of the original option. The valuation at the date of exchange of options takes into account shares that are under option at this date. Where options have been exercised or have lapsed, these need not be taken into account in determining whether the options are within the limit,
  • The company granting the replacement option must satisfy the independence and trading activities requirements at the date of grant of the new option,
  • The new option must be granted to the option holder by reason of his employment with the acquiring company or, if this is a parent company, another member of the group and he must be an eligible employee at the time of the grant, and
  • The company must notify the grant to HMRC using the online ERS service within 92 days of the grant of the replacement option. See ETASSUM56010 on how to notify grant of EMI options.

A replacement option is treated for the purposes of Schedule 5 as if it had been granted on the date on which the old option was granted, (Paragraphs 41 and 43).