It’s a game of 3 halves

The employee ownership world was holding its breath for this week’s budget and it appears to have been a game of three halves.  To continue the football analogy, Team EMI were resounding winners;  Team EOT just about snuck a win at home; and Team Dividend Payments were held to a goalless draw.

The only out and out losers were probably Team CSOP, as the changes to Enterprise Management Incentives look like Company Share Options Plans  increasingly becoming irrelevant to the majority of SMEs with fewer than 500 employees (subject to certain specific EMI qualification points).

Changes to Enterprise Management Incentives

We warmly welcome the government’s decision to expand the eligibility of the Enterprise Management Incentive Scheme (EMI) with several limits being increased.  Effective from the 6th April 2026:

• the 250 employee limit is increased to 500;
• the £30m gross assets limit is increased to £120m;
• the maximum value of EMI options that can be granted by a company is increased from £3m to £6m.

In addition, the maximum period in which EMI options can be exercised will be extended to 15 years from the current 10 years.  This applies to existing EMI options as well as new option grants.

These changes clearly expand the scope of companies who qualify to participate and benefit from the tax advantages provided by EMI options.  In addition, the increase on the value limit for companies hugely improves the capacity for EMI to deliver incentivisation and reward on an all employee basis, even in a medium sized company with existing value.

In particular, companies who are currently using a Company Share Option Plan (CSOP) as an incentive tool may wish to reconsider their qualification status for EMI options.

We will be in touch with our clients shortly to discuss how these changes will impact on their existing share plans.

Changes to Employee Ownership Trusts

Despite the government reducing the Capital Gains Tax relief available on qualifying disposals to Employee Ownership Trusts from 100% of the gain to 50%, effective immediately, this is still one of the most founder friendly succession routes available to business owners.  Assuming you are a higher rate taxpayer vendors will now effectively be taxed at 12%.

Changes to tax on dividends

The government is changing the rates of income tax applicable to dividends. From 6 April 2026, the ordinary rate will be increased by 2 percentage points to 10.75% and the upper rate will be increased by 2 percentage points to 35.75%. The additional rate will remain unchanged at 39.35%.  The tax free allowance on dividends remains at £500.

If you would like to discuss how these changes may affect you and your employee ownership objectives please contact us at enquiries@rm2.co.uk and we can arrange for you to speak to one of our specialist advisers.