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Tax Bite – Varying EMI (and CSOP) Options – PISCES and a reminder of the risks

As has been widely reported on, the UK is introducing a new trading mechanism for private company shares – PISCES (Private Intermittent Securities and Capital Exchange System).

Draft legislation has recently been published for Finance Bill 2026 which confirms that, for EMI and CSOP share options that are granted prior to Finance Bill 2026 receiving Royal Assent, it will be acceptable to make amendments to option contracts if the only effect of the amendment is to allow for the option to be exercised where the shares subject to the option have become PISCES shares, provided that the shares acquired on exercise are then immediately sold on PISCES. In other words, allowing a PISCES trading event to be an exercise (and then share disposal) trigger.

By “acceptable”, we mean the draft legislation says that any such amendment will, if made in compliance with the above, be deemed to have been a term of the option from the outset, and so will not disturb the EMI / CSOP option’s qualifying status.

Any such variation must either be made by written agreement with the optionholder, or be notified in writing to the optionholder.

This relaxation of the rules on amendments to tax-advantaged options is limited strictly to the above, so it is worth keeping in mind some other points around amendments to options:

• For any options granted after the date of Royal Assent, this concession won’t apply so if a PISCES trading event is to be an exercise trigger, it will need to be set out in the option contract from the outset.
• Any other amendments to options need to be approached with care, and advice should be sought.
• Certain amendments to EMI options can be disqualifying events in and of themselves under the EMI legislation.
• For other amendments, anything more than what HMRC consider a “de minimis” change may be treated as a deemed surrender of the existing option and grant of a new option, which will cause the loss of any accrued EMI / CSOP benefit of the original option (and where EMI options are amended in a way that amounts to a surrender and re-grant, companies often don’t realise it so don’t notify the deemed new option as an EMI option or seek agreement of a new valuation with HMRC).

Outside of amendments to the option contract itself, having board discretions in option contracts continues to be useful in terms of flexibility, but advice should be taken on the effect of exercising any such discretion. HMRC’s current position on this in guidance is that if the exercise of a discretion allows the option to be exercised in circumstances where the optionholder would otherwise not (or not yet) be allowed to exercise it, this will amount to a surrender and re-grant, whereas the exercise of other discretions typically won’t have that effect, so long as the discretionary power is contained in the option from the outset. An example of the former would be an “exit only” option if the directors exercised a discretion to allow the option to be exercised on an event that fell short of an exit event as defined in the option documents. An example of the latter would be exercising a discretion to let a leaver keep his or her option when the default position under the option is “lose if leave” (albeit leaving employment would of course be an EMI disqualifying event) or allowing an optionholder to exercise the option over shares that had not yet vested as well as those which had vested at the exercise trigger date (e.g. on an exit event).

As the distinction between what may or may not be permissible in any case may be fine, but the consequences of loss of tax-advantaged status for the option can be severe (particularly if the problem is only picked up at the last minute when the options are about to be exercised on an exit), we always recommend advice be sought before making any amendments to existing EMI or CSOP options or exercising any discretions.