Which events can disqualify EMI options?

📘 Overview

Enterprise Management Incentive (EMI) options provide generous tax advantages, but these can be lost if a “disqualifying event” occurs.

When an EMI option becomes disqualified, it no longer qualifies for full tax relief. However, in most cases, the tax benefits can be partially preserved if the option is exercised within 90 days of the disqualifying event.

This guide explains:

What counts as a disqualifying event
The tax impact of disqualification
How to maintain relief where possible

⚠️ What Happens When an EMI Option Is Disqualified

If a disqualifying event occurs:

Income tax relief is partially lost, and
Capital gains tax (CGT) relief is fully lost.

If the employee exercises their options within 90 days of the disqualifying event, the tax benefits up to that date are preserved.

If the option is exercised after 90 days, the employee must pay income tax on the increase in share value between:

the date of the disqualifying event ➜ and ➜ the date of exercise.

🚫 Common Disqualifying Events

Disqualifying Event	Description / Example
Change of Control	The company is acquired and becomes a subsidiary of another entity.
Non-Qualifying Trade	The company stops meeting the EMI trading activity rules, for example, a fintech company obtaining a banking licence (a non-qualifying activity).
Employee No Longer Meets Working Time Requirement	The employee leaves the company or reduces their working hours below the EMI threshold (at least 25 hours per week or 75% of total working time).
Variation of Option Terms	Any change to the option agreement, e.g. changing the vesting conditions, altering the exercise price, or increasing the number of options, can trigger disqualification.
Share Conversion	The underlying shares are converted into a different class (for example, from ordinary to preference shares).
Exceeding the Employee Limit	The employee is granted additional options that take the unexercised total above £250,000 in market value at the grant date.

💡 Important Notes

The company’s gross assets exceeding £30 million does not cause disqualification.
Disqualification does not automatically cancel the option, it only affects the tax treatment.
Some disqualifying events (like leaving employment) may already be covered by the option’s terms, such as “good leaver” or “bad leaver” provisions.

🕒 Exercising Within 90 Days

If an employee exercises their EMI options within 90 days of the disqualifying event:

Income tax relief is maintained on the growth up to that date.
Capital gains tax relief (via Business Asset Disposal Relief) is still available for qualifying shares.

If exercised after 90 days:

Income tax applies on any increase in share value after the disqualifying event.
Capital gains tax relief is lost entirely.

📎 Tip: Employees should be notified promptly if a disqualifying event occurs so they have time to decide whether to exercise their options within the 90-day window.

✅ Summary

Event Type	Disqualifying?	Action Required
Change of control	✅ Yes	Exercise within 90 days to preserve tax relief
Company stops qualifying trade	✅ Yes	Review eligibility; consider early exercise
Employee leaves / reduces hours	✅ Yes	Check EMI working time conditions
Option terms changed	✅ Yes	Avoid altering exercise price or vesting terms
Shares converted to another class	✅ Yes	Seek advice before restructuring
Employee’s total unexercised EMI options exceed £250,000	✅ Yes	No new EMI grants permitted above this limit
Company’s gross assets exceed £30m	❌ No	Still qualifies for EMI