EMI2 and employee share scheme changes – Autumn Budget 2026

 
The Autumn Budget 2026 confirms a significant expansion of the Company Share Option Plan (CSOP).

From Budget day, CSOP will be renamed Enterprise Management Incentives 2, or EMI2. The government’s stated aim is to give scaling businesses a more generous and flexible way to attract and retain employees and allow them to share in the value they help create.

What is changing under EMI2?

From 6 April 2027, the individual EMI2 (or CSOP) option limit will increase from £60,000 to £120,000. This is measured by reference to the value of the shares when the option is granted, rather than the eventual value realised. The maximum period for tax-advantaged exercise will also increase from 10 to 15 years.

The existing conditions will continue to matter. CSOP is a discretionary scheme, so the company can select participating employees and directors. The exercise price must be set at no less than market value at grant and the option must be exercised in accordance with the statutory rules for the tax advantages to apply.

The government is also removing the interaction between the CSOP and EMI individual limits. EMI currently allows qualifying employees to hold options over shares worth up to £250,000, but that limit includes any CSOP options. From 6 April 2027, the limits will be separated. Where both regimes’ conditions are met, an employee should therefore be able to hold up to £250,000 of EMI options and £120,000 of EMI2 options.

Despite the name, EMI2 is not a replacement for EMI. It is the renamed and expanded CSOP regime. It should be particularly relevant where EMI is unavailable or where a business wants additional option capacity, provided the separate EMI2 conditions can be met.

What else is changing for EMI and employee share schemes?

Several other measures will also take effect from 6 April 2027:

• Disqualifying events: The period for exercising an EMI option after a disqualifying event will double from 90 to 180 days. A disqualifying event can include the company or employee ceasing to satisfy the EMI conditions. The longer window will give businesses more time to manage an exercise while preserving the EMI treatment otherwise available.
• Employee Ownership Trusts: The existing EMI exception for companies controlled by an Employee Ownership Trust will be extended to companies arranging to become EOT-controlled. This should allow qualifying EMI options to continue to be granted during the transition to employee ownership.
• Third-party share arrangements: The ‘disguised remuneration’ exclusion for certain employee shares and options held through third-party arrangements will be extended from 10 to 15 years. This is a targeted extension, not a general exemption for all employee share arrangements.
• EMI grant reporting: For EMI options granted on or after 6 April 2027, companies will no longer submit a separate grant notification. Grant details will instead be included in the annual EMI return. The first affected return will be for 2027/28 and will be submitted from 6 April 2028.

Who should review their arrangements?

The changes should assist businesses using share options to compete for talent and align employees interests with the future growth of their employer. They may be especially relevant to scale-ups approaching EMI limits, businesses that do not qualify for EMI and companies considering an Employee Ownership Trust.

Before April 2027, businesses should:

• Map existing EMI and CSOP awards;
• Identify employees who could benefit from additional capacity;
• Review scheme rules, option terms and share eligibility;
• Revisit valuations and proposed grant timing; and
• Identify any EMI options that could be affected by a future disqualifying event or EOT transaction.

Existing CSOP options should not be assumed to obtain the £120,000 limit or 15-year period automatically. The Budget documents do not yet confirm the transitional treatment, whether existing options can be varied safely, or whether scheme rules will need to be amended.

Overall, EMI2 is a welcome extension of a familiar regime. The practical opportunity is greater option capacity and a longer period in which value can develop. We recommend reviewing schemes now, but making changes only once the Finance Bill and HMRC guidance confirm how existing awards will be treated.

If the Budget has raised any questions for you, book your place on our question time webinar this Friday at 9:30am. Alternatively, if you would like any further information or guidance on this topic, get in touch with your usual Kreston Reeves contact or contact us here.