What is the tax treatment of the options and the shares acquired?
On grant No tax or national insurance (NI) will be payable on the grant of the option. On exercise Provided that the options are exercised within 10 years of the date of grant, and, if the price at which the employee can exercise the option is at least equal to the market value of the shares when the option is granted, no tax or NI is charged. If the options are ‘nil cost’ or ‘discounted’ options, there will be an income tax (and NI, if the shares are readily convertible into cash) charge on the difference between the amount paid for the shares on exercise and the market value of the shares at the date of grant (ie on the element of the discount). If there is a charge to NI, it is possible to transfer the employer’s NI liability to the employee, who can obtain income tax relief on the payment. On sale Capital gains tax (CGT) is chargeable on the profit element on the sale of shares acquired following the exercise of EMI options. From 6 April 2008, CGT is charged at a flat rate of 18%.
