UK Autumn Budget: Changes for employee ownership - EMI and EOTs

UK Autumn Budget: Changes for employee ownership – EMI and EOTs

The UK Budget 2025 announced various changes that will impact employee ownership, including changes to allow larger companies to qualify to grant Enterprise Management Incentive schemes and which restrict the tax relief available on sales to Employee Ownership Trusts. The changes introduced are set out below.

Changes to Enterprise Management Incentives (EMI) schemes

An EMI scheme is a tax-advantaged share scheme, which allows companies to give options over shares to selected employees to incentivise and retain them. Under an EMI, an employee is granted an "option", which is a right to acquire shares in the future. Where the option price reflects the market value of the shares at the date the option was granted, no income tax nor national insurance contributions (employee or employer) arise on the grant or exercise of a qualifying EMI. Capital gains tax could still arise on a later sale of the shares, but relief may apply to reduce the rate of capital gains tax that will apply.

Whilst EMI is often considered the most flexible tax advantageous share option plan for qualifying companies, there are qualifying conditions which both the company and the employee needs to meet and therefore not all companies are eligible to grant EMI options to its employees.

In the budget the government announced that the eligibility limits for EMI share option schemes will be extended so that larger companies can qualify. From April 2026 the following changes will be introduced:

• The cap on the number of employees a company establishing an EMI plan can have is rising from 250 to 500.

• The company gross-assets limit increases from £30 million to £120 million.

• The overall limit on the value of shares under option has doubled – increasing from £3 million to £6 million. The limit applying to an individual employee remains at £250,000.

• The maximum holding period during which an option can remain unexercised without losing the tax benefits is extending from 10 years to 15. This will apply to existing EMI options, not just new grants.

The government also announced that the requirement to notify the grant of EMI options will be removed from April 2027. Currently if an EMI option is not notified to HMRC by the 6 July following the tax year in which the option was granted, it will not qualify for EMI and the tax benefits cannot be recovered.

These are significant changes to the EMI regime and shows that the government recognises the benefits of employees having a shareholding stake in employer businesses. The changes to company eligibility will make EMI available to many companies that previously wouldn’t have qualified. The removal of the notification requirement for EMI grants also demonstrates that the government is trying to reduce some of the administrative requirements of EMI, which have historically caused qualifying companies to realise on a sale that their option holders will miss out on the EMI benefits – this is a welcome change.

Changes to Employee Ownership Trusts

In contrast to the changes we have seen for EMI, the government announced a reduction of the relief available on a disposal of businesses into an Employee Ownership Trust (EOT).

An EOT is a type of employee benefit trust where trustees own all or a controlling stake in a company for the benefit of its employees. Previously a disposal by shareholders to an EOT was exempt from capital gains tax (CGT). However, the CGT relief available on such disposals has been reduced from 100% to 50%, effective immediately.

Whilst an incentive remains for shareholders to sell to an EOT, the cutting of the relief, as well as restrictions on the tax treatment of EOTs announced in the 2023 budget (see here), make it a less appealing option. This may result in changes to the uptake of EOTs, particularly where these are structured with deferred consideration, as shareholders will want to ensure any immediate proceeds of the sale will cover the cost of any CGT.

How Brodies can help

If you have any questions in relation to the matters discussed in this article or would like to hear more about employee ownership and incentives, please contact one of our Corporate Tax & Incentives team.

For further updates, as well as a summary of our key tax takeaways from the UK Autumn Budget 2025, visit our UK Budget Hub or contact one of our tax experts below, or your usual Brodies contact for more information on how these new developments may impact you or your business.