Board discretion in UK EMI share options: HMRC guidance on vesting variations, exercise timing and 'surrender and re-grant' risks
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Practice notes
Issues on the use of discretion in EMI share options
This topic has drawn attention in recent years, seemingly after reports that at least one law firm received a ‘rogue response’ from a junior at HMRC’s Employee Share Schemes Unit (ESSU). The query asked HMRC to confirm that tax relief could apply where shares were acquired on an early exercise of Enterprise Management Incentives (EMI) options, using a board discretion expressly included in the option terms, triggered by a corporate event that did not otherwise give optionholders a right to exercise. HMRC apparently indicated that, in those circumstances, the early share acquisition would attract income tax relief as an acquisition under an EMI option. By contrast, there were accounts of HMRC stating that deploying discretion to amend performance-based vesting conditions destroyed the options’ EMI-qualifying status. Any such determinations (if made) were misjudged. Nevertheless, this ‘set a hare running’, with some practitioners wrongly asserting that exercise pursuant to any discretion on the part of the board...
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Web page updated on 21/05/2026
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