Finance Act 2026: key updates to EMI and EOTs

EMI schemes

EMI schemes are widely considered the “gold-standard” in the tax advantaged employee share option schemes supported by the UK Government. Where the qualifying conditions are met they are typically the scheme of choice and there should be no income tax or national insurance contributions payable when an EMI share option is granted to an employee, or when a qualifying option is exercised and the employee is issued with company shares (provided the exercise price is equal to the market value of the shares at the date of grant, as to which HMRC approval may be sought for certainty in treatment).

Any growth in the value of the shares above the exercise price and realised on a sale is then generally chargeable to currently lower rates of capital gains tax (CGT), and shares acquired under EMI options also benefit from key relaxations on the conditions for the application of the lower CGT rate under Business Asset Disposal Relief (BADR). Due to these favourable tax benefits, it is perhaps unsurprising that the qualifying conditions are strict and need to be met by the issuing company, the shares under option and the employees, to qualify for EMI treatment. The welcome news is that the Government has now significantly relaxed a number of the key thresholds relating to the number of company employees, the gross assets of the company and the total value of shares that can be placed under option. Any companies that have previously considered EMI options but who were deemed too large under these thresholds may now wish to reconsider their employee incentive arrangements in light of these changes.

For EMI options granted on or after 6 April 2026, the following limits have been increased:

• The aggregate company limit on the value of shares under EMI option has doubled from £3million to £6million;
• The gross assets test (being the value of the gross assets held by the company/group issuing the options) has quadrupled from £30million to £120million;
• The cap on the number of full-time equivalent employees the issuing company/group may have has doubled from 250 to 500;
• The maximum holding period for EMI options has increased from 10 years to 15 years (including in respect of existing EMI options, with some flexibility to amend existing rules and agreements).

The Government has also announced that it will legislate in the Finance Act 2027 to relax the qualifying requirement to notify HMRC of the grant of EMI share options within strict time limits, which should ease some of the administrative burden and compliance risk for companies failing to register in time. However, companies will still need to register a new EMI scheme and make a declaration that the scheme meets the relevant conditions along with submitting annual returns to report any scheme activity. Annual returns are due to be submitted on 6 July following the end of each tax year.

In addition to the changes around eligibility, EMI and Company Share Option Plan (CSOP) contracts granted before 6 April 2028 may be amended to include the sale of shares on the Private Intermittent Securities and Capital Exchange System (PISCES), as a specified exercise event whilst retaining EMI tax treatment. PISCES is the new stock exchange for secondary trading of shares in private companies but there will only be limited trading windows throughout each year. Without this change, amending the terms of an existing EMI or CSOP contract to introduce a new exercisable event relating to PISCES not included at grant of the option would have disqualified the advantageous tax treatment. Companies will need to notify their employees in writing of the change to include PISCES (if they so wish), which can be done by obtaining a written agreement to amend the existing contract. The relaxation in the rules is subject to strict conditions and any amendments will require careful legal advice and drafting.

The Government have also published a Call for Evidence on tax support for entrepreneurs, seeking views on the effectiveness of current tax incentives. Therefore, there may be further changes to EMI schemes and other employee incentives to come, so watch this space.

EOTs

In contrast, one of the potentially less favourable changes legislated within the Finance Act 2026 and introduced in the November Budget with immediate effect from 26 November 2025 (Budget Day), is the reduced CGT relief for qualifying disposals by individual owners to EOTs. EOTs are a type of employee benefit trust where a trustee holds a controlling stake in a company on behalf of its employees. Prior to Budget Day, as an incentive for more individuals to sell their shares to EOTs to increase the number of employee-owned business in the UK, individuals could potentially enjoy 100% relief from CGT on any chargeable gain arising on the disposal to a qualifying EOT. This relief has now been cut to 50% of the chargeable gain, with 50% of the gain now being taxed on the individual in the year of sale and resulting in an effective 12% rate of CGT for higher-rate taxpayers. BADR and Investors’ Relief, which reduce the rate of CGT payable on chargeable gains when certain conditions are met, will also not be available on the taxable gain if this 50% relief has been claimed by a taxpayer selling their shares to an EOT.

The remaining 50% of the gain will not be chargeable at the time of the disposal to the EOT but will be held over through a reduction in the base cost of the trustee to come into charge on any future disposal of the shares by the trustee of the EOT. However, relief for the individual seller remains subject to the existing clawback of the CGT relief if a disqualifying event occurs within four tax years following the disposal, in which case the individual seller will become liable for CGT on the held over amount.

Blake Morgan’s Corporate Tax team can advise on a number of matters and have the experience to distil complex rules in an accessible manner. Find out more about our tax advice for businesses here.