ETASSUM54060 - Enterprise Management Incentives (EMI): Requirements relating to options: Amendments to options

Part 5 of Schedule 5 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA)

Whether any changes amount to a new option is a question of fact and degree. Minor alterations that do not affect the terms of the option and do not increase the market value of the shares that may be acquired and are not contrary to the requirements of Schedule 5 will generally be acceptable. The date of grant of the option will remain unchanged.

However, it will be a disqualifying event if the changes are a variation in the terms of the option and they increase the value of the shares that may be acquired under the option, or result in the conditions of Schedule 5 no longer being met, (section 536 ITEPA).

If there is a change to any of the fundamental terms of an option to improve the rights of the option holder and the change is more than “de minimis”, the change will amount to the grant of a new option. The fundamental terms of an option are:

  • the number of shares to be acquired,
  • the price at which they are to be acquired, and
  • when they can be acquired.

A “de minimis” alteration to the fundamental terms of an option is one which results in only a very minor improvement to the existing rights. For example, if an EMI option is exercisable upon the occurrence of a specified ‘exit’ event, such as a sale or listing, then an alteration to allow for exercise immediately prior to, and conditional upon, the ‘exit’ event would be acceptable and considered a “de minimis” alteration.

Altering an EMI scheme to include a cashless exercise provision would also be considered “de minimis” alteration. More information on cashless exercises is available at ETASSUM51080.

For any other alterations, the advice of HMRC should be obtained before accepting that an alteration to the fundamental terms of an option is a “de minimis” alteration

If the change amounts to the grant of a new option, the existing EMI option is released. Any consideration received for the release will be chargeable to income tax under section 477 ITEPA, (See ERSM110800).