EMI, CSOP and NTF options are all types of share options that UK companies can grant to its service providers under a share option plan. They differ in the tax treatment applicable (both to the recipient and to the company) and the persons who are eligible to receive such options.
EMI options may only be granted to employees and executive (i.e. employed) directors working for the company at least 25 hours/week or, if less, at least 75% of their working time. EMI options are potentially very tax advantageous for participants provided all qualifying conditions are met. This includes: no tax on grant, potentially no tax on exercise, and a 10% rate of capital gains tax on the first £1m of lifetime gains under the UK’s Business Asset Disposal Relief rules if the shares are sold in qualifying circumstances at least two years after the EMI option is granted. There are a number of qualifying tests for the company, participant and option terms which must be satisfied (generally on an ongoing basis) and which must be examined each time an EMI option is granted.
CSOP options can only be granted to group employees and full-time directors. Participants are limited to holding £60,000 of shares under unexercised CSOP options (noting the limit is subject to change) and there are a number of qualifying tests which must be satisfied on an ongoing basis, including that the CSOP option is granted with an exercise price not less than the market value of the underlying shares. CSOP options are potentially tax advantageous for participants provided all qualifying conditions are met. This includes: no tax on grant, no tax on an exercise in qualifying circumstances (where options are held for three years before exercise or in certain statutory “good leaver” scenarios and certain cash takeover situations), and capital gains tax on the sale of the underlying shares.
NTF options have no UK tax advantages but can be granted to employees, executive and non-executive directors and non-employees (although UK securities laws requirements must be considered). The terms are largely at the discretion of the company (including the exercise price which may be at a discount to market value at grant) and there are no statutory qualifying conditions as there are for EMIs and CSOPs. There is no tax to pay at grant but income tax (and potentially National Insurance Contributions) arises on exercise of the option on the difference between the market value of the shares at exercise and the exercise price. The option holder is also subject to capital gains tax on the sale of the underlying shares.
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