EMI shares have special rules in order to qualify for ER, as outlined by HMRC at CG64052.
However the starting point will be to consider whether the client qualifies for ER by meeting the more usual conditions of 169I(6) and s169S TCGA 1992. Therefore we initially ignore the option dates and look at when the shares were actually acquired. Using these dates, we check to see if throughout the 2 years preceding the disposal:
- the client had held at least 5% of the ordinary share capital of the company, which gave them at least 5% of the voting rights in the company
- he was an officer or employee of the company, and
- the company was a trading company, or holding company of a trading group.
- the “economic interest requirement” is met – see CG64051
If your client meets these conditions, then all of the shares disposed of will qualify for ER.
If, based on the acquisition dates of the shares, he had not held 5% or above of share capital for a full 2 years, you would then need to consider whether any of the shares disposed of would qualify for the special treatment afforded to EMI shares. These conditions remove the need for the company to be a personal company (more than 5% share capital) throughout the years before the disposal. As mentioned above, HMRC’s guidance is at CG64052.
Firstly, we would have to consider the share identification rules.
As in this scenario, all shares were acquired from the exercise of EMI options after April 2012, disposed of on the same day, and are of the same class; we will simply have to apply the rules on an apportionment basis.
The proportion of shares, which meet the below conditions (as per 169I(7A) TCGA 1992) will qualify for ER:
- acquired as result of the exercise of a qualifying option after 6 April 2012
- the options to which they relate were granted at least 2 years before the disposal
- the company has been a trading company, or holding of a trading group for 2 years up to the date of disposal, and
- the employee was an officer or employee of the company or group throughout the 2 years.
The proportion of shares that don’t meet these conditions, for example because the options were only granted 1 year ago, will not qualify for ER.
There are numerous conditions for gains to qualify for ER and these must be considered in the context of the clients’ specific circumstances.
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