Can you qualify for Entrepreneurs’ Relief when selling shares you acquired through an EMI scheme?

A new client exercised an EMI share option just over a year ago and now holds approximately 6% of the ordinary share capital In her employer’s company.

She sought advice from us when a potential offer for the company arose. She had heard that in order to qualify for the 10% capital gains tax rate under Entrepreneurs’ Relief, a working shareholder needs to have owned 5% or more of the shares for a period of at least two years. This requirement applies to share disposals from 6 April 2019, whereas the qualifying period of ownership used to be only one year. She was worried that she would not qualify for Entrepreneurs’ Relief unless the sale of the company was delayed until two years had elapsed since she acquired the shares by exercising her option.

We were able to reassure her that this rule is relaxed where shares are acquired under an EMI share option. This is because the period of ownership starts when the share option is granted rather than when the option is exercised.  As she was granted the option over four years ago, she will qualify for the 10% tax rate, provided the other qualifying conditions are met. It is also worth noting that the relief would still have been available if she had acquired less than 5% of the share capital under the option because that rule is waived for shares which are acquired under EMI share option schemes.

Author: Peter Hedgethorne, Director, Plus Accounting

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