Right time to buy EMI scheme options

dave129

Hi, I was granted options in my company a few years back, which are now fully vested. They are part of an 'EMI Scheme', which I understand means that I can exercise them at any time, without any tax obligation, then when I come to sell them, which could be in 5 years, or could be 15, I pay 10% capital gains tax, rather than the usual 20%. I also understand that if I leave company before an exit event, I will lose the tax benefit, so will go back to paying 20%. Is this correct? Would like to be sure that there is no downside of exercising the options now, and I still get the preferential 10% CGT when sold. Thanks in advance for any help!

steampowered

You need to read the EMI scheme rules. Many EMI options are "exit only", and can only be exercised when the company is sold or IPOd.

The biggest disadvantage of exercising your options now is that they could become worthless if the company enters insolvency in future. Though EMI options are usually issued at a highly attractive price so it may be worth the risk.

I could be wrong, but I think you will need to pay 10% CGT on the difference between the exercise price of your options and the eventual sale price. So there would be no particular CGT advantage to exercising now.

If you leave the company before an exit while you are an optionholder, you'll be subject to the leaver provisions in the option scheme rules. If you leave the company before an exit while you are a shareholder, you'll be subject to the leaver provisions in the company's articles of association. 

If you leave the company, you need to exercise your options within 90 days to retain the tax benefit.

coachman12

I'm a great believer in EMI -------I haven't looked online but I seem to recall that you are quite right about the 10% and 20% aspects. 
The main factor might be ------- are the company shares going to rise, would you buy them if you didn't work for them ?  
All the best.

dave129

Thanks both, really appreciate the quick replies! I'm not worried about them being worth less since we're already through Series A and they are worth many times the exercise price. My biggest concern was that by exercising now, I may lose the CGT benefit (I originally thought I couldnt exercise until an exit event, to have the 10 vs 20% CGT benefit). But it seems (I really hope!) that this is not the case, and there is no disadvantage in exercising now (obviously apart from the chance of the company failing).

coachman12

I think your fears have been allayed, dave, and I wish you all the best in your career with what sounds like a successful,  enterprising and caring employer. Cheers.