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Tax Bite - Royal Assent to the Finance Bill – Changes for tax-advantaged share options and share investment

On 11 July 2023, the Finance (No 2) Bill 2023 received Royal Assent.

This has given effect to a number of relaxations and increases in limits relevant to tax-advantaged share options and share investments:

Enterprise Management Incentive (EMI) Options

• The requirement to include within the option contract details of any restrictions that apply to the shares no longer applies. As best practice, we would still recommend that optionholders be directed to the articles of the company (as we used to do before HMRC started insisting on full details of the restrictions being set out in the option contract) so they have an awareness of the rights and restrictions applying to the relevant shares.

• Requirements around the employer company making declarations about the working time requirement, and penalties if the requirements around this declaration are not met, are also removed. This does not change the working time requirement itself, which still must be met in each case, but is another welcome relaxation from a compliance perspective.

These changes have effect both for options granted on or after 6 April 2023 but also options granted before, but which are exercised on or after, that date, which is more good news.

Note that the proposed relaxation in the deadline for notifying option grants (from the current 92 days from the date of grant to any time before the 6 July following the tax year in which the option was granted) is still expected to apply from 6 April 2024, but the legislation to implement that change is yet to be published. As a result, all EMI options must still be notified within 92 days of their date of grant.

Company Share Option Plan (CSOP) Options

• The maximum market value of shares that an individual employee can hold subject to unexercised CSOP options increases from £30,000 to £60,000 for options granted on or after 6 April 2023.

• The requirement that CSOP options be over “employee control” or “open market” shares is removed, and this applies to options granted on or after 6 April 2023 but also options granted before, but which are exercised on or after, that date.

CSOP options, whilst not as attractive as EMI options, can be a good alternative where EMI requirements are not met e.g. where the company carries on an “excluded” EMI trade, where gross assets have gone above £30m or where there are more than 250 employees. These changes will make CSOP options materially more attractive, particularly for companies with multiple share classes who may previously have been effectively prevented from granting these options.

Seed Enterprise Investment Scheme (SEIS)

For shares issued on or after 6 April 2023, there are increases in the SEIS limits for:

• the maximum amount a company can raise, from £150,000 to £250,000;

• the gross assets (prior to investment), from £200,000 to £350,000;
• individual annual investment, from £100,000 to £200,000; and
• the length of time a company can have traded for, before ceasing to be eligible (three years, up from two years).

SEIS tax reliefs are extremely generous, so these changes will be welcomed by investors.