Part 2: General requirements
Paragraph 3: General requirements: introduction
3466.This paragraph is introductory and derives from paragraph 8 of Schedule 14 to FA 2000.
Paragraph 4: Purpose of granting the option
3467.This section derives from paragraph 9 of Schedule 14 to FA 2000.
Paragraph 5: Maximum entitlement of employee: financial limit on unexercised options
3468.This paragraph derives from paragraph 10(1) to (3) and (6) to (8) of Schedule 14 to FA 2000 and sets out a limit of £100,000 on the value of shares in respect of which “unexercised qualifying options” are held by each individual employee. If the grant of an option causes this limit to be exceeded, then the option does not qualify under EMI so far as it relates to that excess. If the limit is already exceeded at the time that further options are granted, those further options do not qualify.
3469.There is no guidance in the legislation on the tax treatment when an option, that includes a qualifying element and a non-qualifying element, is partially exercised. The option agreement itself may provide guidance on this. Otherwise, in practice, the person exercising the option will be able to decide which part of the option was exercised, enabling the relief to be taken in the way that suits the option holder.
3470.This paragraph also contains information about how to arrive at the share values. Sub-paragraph (6)(a) makes it clear that the value of the shares for the £100,000 test is frozen at the time when the option is granted. This was the intention of the original clause and is the way the provision has been interpreted. As this is part of the definition of “unexercised qualifying options” it has an impact on the test in paragraph 7(1) of this Schedule and in turn on paragraphs 41 and 43 as well. See Change 177 in Annex 1.
Paragraph 6: Maximum entitlement of employee: further limit of 3 years
3471.This paragraph derives from paragraph 10(4) to (8) of Schedule 14 to FA 2000. If the limit set out in paragraph 5 has been reached, no further qualifying option can be granted for three years from the date of the grant of the last qualifying option.
Paragraph 7: Maximum value of options in respect of relevant company’s shares
3472.This paragraph sets out the limit on the value of shares in the relevant company that can be the subject of unexercised qualifying options. That limit is £3 million. This paragraph derives from paragraph 11 of Schedule 14 to FA 2000.
3473.There is a cross-reference in sub-paragraph (6) to the rules about the valuation of the shares subject to the option in paragraph 5(6) to (8) of this Schedule.
