HMRC: Major EMI CSOP Changes 2027 Double Employee Limits

• The government is implementing significant changes to Enterprise Management Incentive (EMI) and Company Share Option Plan (CSOP) schemes, effective from April 6, 2027.
• The individual EMI option limit will double to £120,000, and CSOP options will no longer count towards the EMI limit.
• CSOP will be rebranded as 'Enterprise Management Incentives 2 (EMI2)' from October 28, 2026, and its maximum exercise period will extend to 15 years.
• Administrative requirements for EMI will be simplified, removing separate grant notifications in favor of annual returns.
• The Business Asset Disposal Relief (BADR) lifetime limit will be reduced from £1 million to £500,000 for qualifying disposals from April 6, 2027.

The comprehensive set of reforms, particularly the increased individual limits and extended exercise periods for both EMI and CSOP schemes, underscores a governmental push to make employee share ownership more accessible and attractive.

The UK government has announced a series of substantial reforms to its Enterprise Management Incentive (EMI) and Company Share Option Plan (CSOP) schemes, set to take effect from April 2027. These changes, detailed in the Budget 2026, aim to enhance the attractiveness and flexibility of employee share ownership, with a particular focus on increasing individual limits and streamlining administrative processes. A key development includes the rebranding of CSOP to 'Enterprise Management Incentives 2 (EMI2)' from October 28, 2026, signaling its reinforced role as a complementary and follow-on scheme for businesses.

Among the most impactful adjustments, the individual employee maximum share option limit for EMI will double from its current £60,000 market value at grant to £120,000, effective April 6, 2027. This increase provides companies with greater scope to incentivize key talent through EMI options. Furthermore, a significant simplification will see the removal of the current interaction where CSOP options count towards the £250,000 EMI individual limit. From April 6, 2027, employees will be able to receive CSOP options without affecting their existing or future EMI entitlements.

The maximum exercise period for CSOP options is also slated for an extension, moving from the current 10 years to 15 years, aligning it with the existing EMI scheme. This change applies to CSOP options granted on or after April 6, 2027. Importantly, existing CSOP option agreements predating April 6, 2027, can be amended to incorporate this longer exercise period without jeopardizing their tax advantages, provided such amendments adhere to legislative guidelines.

Administrative burdens for EMI schemes are also being reduced. As announced in Budget 2025, the requirement for companies to submit a separate notification for each grant of EMI options will be abolished from April 6, 2027. Instead, companies will fulfill this obligation by notifying grants through their annual EMI return. This change applies to options granted on or after the specified date. Additionally, the period for 'earmarking' exceptions, which prevent an Income Tax charge when shares are set aside for an employee before option exercise, will be extended from 10 years to 15 years from April 6, 2027. This new period will also apply to unexercised share and share option agreements already in existence before this date.

Further enhancements include an extension to the Enterprise Management Incentive independence requirement's exception for companies subject to an Employee Ownership Trust (EOT). The government has confirmed that this exception will now encompass situations where arrangements are in place for a company to become EOT-owned. This means that EMI companies that begin arranging to become EOT-controlled on or after April 6, 2027, can continue to grant qualifying EMI options.

In another beneficial change for employees, the period allowed to exercise options and retain associated EMI tax advantages following a disqualifying event will be extended. Currently set at 90 days, this window will increase to 180 days from April 6, 2027. This extended period will also apply to EMI option agreements already in existence, provided the disqualifying event occurs on or after the effective date. However, a significant change impacting capital gains tax relief is also on the horizon. Business Asset Disposal Relief (BADR), which currently taxes qualifying gains at 18% up to a lifetime limit of £1 million, will see its lifetime limit reduced to £500,000 for qualifying disposals from April 6, 2027. This reduction could affect individuals, including employees disposing of EMI shares, whose gains surpass the new, lower lifetime threshold.

The comprehensive set of reforms, particularly the increased individual limits and extended exercise periods for both EMI and CSOP schemes, underscores a governmental push to make employee share ownership more accessible and attractive. The rebranding of CSOP to EMI2, while retaining its legislative name, highlights its strategic positioning as a robust alternative or complement to the original EMI scheme, especially for companies that may exceed EMI's size criteria. These updates provide companies with enhanced tools to recruit, retain, and motivate employees through equity participation.

However, the reduction in the Business Asset Disposal Relief lifetime limit introduces a new consideration for individuals planning to realize gains from qualifying disposals, including those from EMI shares. While the changes to the share schemes themselves are largely beneficial, the BADR adjustment means that the overall tax landscape for employee share scheme participants is evolving. Companies and employees alike will need to understand these multifaceted changes to fully leverage the benefits and navigate the new tax implications effectively.

Lawyers and compliance officers should advise clients on the significant changes to EMI and CSOP schemes effective from April 2027, including increased option limits, extended exercise periods, and the rebranding of CSOP to EMI2. It is crucial to review and potentially amend existing CSOP option agreements to leverage the new 15-year exercise period and to prepare for the reduced Business Asset Disposal Relief (BADR) lifetime limit, which will impact individuals disposing of EMI shares.

Source: Original reporting via GOV.UK