ETASSUM57110 - Enterprise Management Incentives (EMI): Taxation of EMI options: Disqualifying events – alterations of share capital

Sections 536 & 537 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA)

An alteration to the share capital of the company whose shares are under option is a disqualifying event if it:

• affects (or would but for some other event affect) the value of the shares, and

• consists of or includes:

• the creation, variation or removal of a right relating to any shares in the company,
• the imposition of a restriction on any of these shares, or
• the variation or removal of a restriction to which these shares are subject,

and whose effect is that the requirements of Schedule 5 would no longer be met in relation to the options. (section 536(1)(b) ITEPA)

There will also be a disqualifying event if the alteration to the share capital of the company whose shares are under option

• affects (or would but for some other event affect) the value of the shares, and

• consists of or includes:

• the creation, variation or removal of a right relating to any shares in the company,
• the imposition of a restriction on any of these shares, or
• the variation or removal of a restriction to which these shares are subject,

and

• the change increases the value of the shares, and
• is not made for commercial reasons, or
• is made for the purpose of increasing (or one of the main purposes is to increase) the market value of the shares that are subject to the option (section 536(1)(c) ITEPA).