Autumn Budget 2026 – Employee Share Schemes

In the Autumn Budget 2026, the Chancellor has announced certain legislative changes to the discretionary tax advantaged employee share schemes, due to come into force from 6 April 2027.

Rebranding and expansion of Company Share Option Plan (CSOP)

The Government has made the following propositions relating to CSOP:

• CSOP has now been rebranded as “EMI2”, albeit the CSOP name will continue to remain in the legislation
• currently, CSOP Options over shares can be granted to an individual over a maximum unrestricted market value (“UMV”) of £60,000; from 6^th April 2026, this ‘individual limit’ is being increased to £120,000
• under the current rules, the tax advantages of a CSOP Option can be enjoyed if it is exercised within ten years from the date of grant; from 6^th April 2026, the period of exercise is being extended to 15 years

Individual limits for EMI and EMI2 to operate independently

Under the current rules, the value of CSOP Options granted to an individual is taken into account to determine the £250,000 ‘individual limit’ for the grant of qualifying EMI Options.

From 6^th April 2026, the individual limits for the grant of EMI Options and EMI2 Options will operate independently. Accordingly, other things remaining the same, an individual may be granted tax advantaged employee share options of a total UMV of £370,000 – £250,000 under EMI Options and £120,000 under EMI2 Options

Relaxation of certain rules affecting EMI

The following three changes will apply to EMI:

• under the current rules, if an EMI Option is exercised within 90 days of a ‘disqualifying event’ (for example, cessation of employment or failure to meet the working time requirement, the company coming under the control of another company, etc), the tax advantages are retained; the time limit of the exercise window is being extended to 180 days
• currently, the EMI legislation does not allow the grant of qualifying EMI Options if the company whose shares are subject of the option is under the control of another company, or there are arrangements under which it could come under such control. While there is a carve-out for companies which are under the control of an employee ownership trust (EOT) to grant qualifying EMI Options, the carve-out does not extend when a company transitions to an EOT. Legislation is being introduced to carve out a company that is transitioning to an EOT so that such a company continues to have access to EMI during the transitioning process.
• currently, legislation requires the grant of an EMI Option to be notified to HMRC by 6^th July following the tax year of grant, in addition to the obligation to make annual returns. Legislation is being introduced to remove the obligation to notify the grant of an EMI Option after 5^th April 2027, although the obligation to make annual returns remain.

Reduction of the lifetime limit for business asset disposal relief (BADR)

The Government has announced that the lifetime limit for BADR will be reduced from £1 million to £500,000 for disposals qualifying for BADR made after 5 April 2027.

New Founders’ Relief – technical consultation

The Government has announced the implementation of a new Founders’ Relief from 6 April 2027 on qualifying disposal of shares or securities, offering a 10% rate of capital gains tax up to £10 million of lifetime gains for qualifying founders of high-growth, innovative UK companies. A technical consultation on the detailed design was launched on 28 October 2026 which closes on 30 November 2026. Eligibility will be subject to strict conditions relating to the individual’s shareholding, the length of ownership, the individual’s residency and the company’s performance.

Our comments

The Government has proposed some positive changes to the discretionary tax advantaged employee share incentive schemes and introduced the Founders’ Relief which is noteworthy to employers, founders and members of the management team. The Government hopes that changes to the EMI and rebranded CSOP schemes would facilitate greater employee participation, retention of talent and incentivisation which in turn should aid economic growth and development.

Employers should review their existing EMI and CSOP plans, make the necessary changes and review their remuneration policy especially in the light of the expanded CSOP regime, to recruit, retain and motivate staff.

For further information please contact JD Ghosh (jd.ghosh@mm-k.com) Stuart James (stuart.james@mm-k.com) or Paul Norris (paul.norris@mm-k.com)in the first instance.

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