From April 2027, businesses will be able to offer employees more generous tax-advantaged share options under an expanded EMI2 scheme.
The Autumn Budget changes could be particularly valuable for companies looking to attract senior employees, retain key people or reward staff for contributing to future growth.
If you're considering introducing an employee share scheme or already have one in place, now’s a good time to review your options.
What is EMI2 and how is it different to EMI?
EMI2 is the new name for the existing Company Share Option Plan (CSOP), which was rebranded on 28 October 2026. It remains known as CSOP in legislation and is separate from the existing Enterprise Management Incentives (EMI) scheme.
Both schemes allow qualifying employees to acquire shares through tax-advantaged options, subject to certain conditions.
However, while EMI is designed primarily for smaller, qualifying companies, EMI2 is available to a broader range of businesses, including larger companies and those operating in sectors excluded from EMI.
This makes EMI2 particularly relevant to growing businesses that have outgrown EMI or previously been unable to meet its eligibility requirements.
What are the new EMI2 rules from April 2027?
The Autumn Budget announced three significant changes to EMI2, all scheduled to take effect from 6 April 2027.
1. Higher individual share-option limit
The maximum market value of shares over which an employee can hold EMI2 options will double from £60,000 to £120,000, measured when the options are granted.
This gives employers greater scope to offer meaningful equity incentives, particularly to senior employees whose contributions could significantly influence business growth.
2. Longer exercise period
The maximum period for exercising EMI2 options will increase from 10 to 15 years.
This provides more flexibility for businesses planning longer-term growth, allowing them to structure incentive arrangements around their commercial objectives and anticipated timescales.
3. Separate EMI and EMI2 limits
Currently, CSOP options count towards an employee's individual EMI option limit.
From April 2027, the two limits will operate independently, meaning eligible employees can receive options under both schemes without one reducing their allowance under the other.
This could give businesses greater flexibility when rewarding employees as they grow or move between schemes.
Which businesses could benefit from the expanded EMI2 scheme?
The changes could make employee share options worth reconsidering for several types of business.
- Businesses recruiting or retaining senior employees
Share options can help businesses offer competitive remuneration packages without relying entirely on immediate cash rewards.
For example, a company recruiting a senior commercial director ahead of an expansion could use options to reward their contribution to the company's future value.
- Growing SMEs that can’t use EMI
Businesses previously excluded from EMI because of their size or trading activities may find that EMI2 offers a suitable alternative.
The expanded limits could make the scheme more attractive, although eligibility and qualifying conditions will still need to be assessed.
- Companies preparing for investment or a future sale
Share options can help align employees' interests with the company's longer-term plans, particularly where the business wants to retain key people through a period of growth or ownership change.
What should our business consider when designing an EMI2 scheme?
The increased limits create more opportunities, but an effective employee share scheme needs careful planning.
Before introducing EMI2 options, consider how the arrangements will support your commercial objectives and fit alongside existing ownership agreements.
Some important questions include the following:
- Who should take part? Will you offer options to senior management, selected employees or a wider group?
- When should employees receive their shares? Vesting periods and performance conditions can help link rewards to continued employment or business milestones.
- What happens when someone leaves? The scheme should clearly address how you’ll treat options when an employee resigns, retires or is dismissed.
- How will existing shareholders be affected? Granting options may ultimately dilute existing shareholdings, making shareholder rights and approvals important considerations.
- What happens if the business is sold? The scheme should explain how outstanding options will be treated during a sale or other ownership change.
These decisions can significantly affect how well a scheme works in practice.
It's also important to consider the tax treatment alongside the legal arrangements, particularly when establishing eligibility and agreeing share valuations.
What should we do before April 2027?
If you're considering your first employee share scheme, start by:
- reviewing the available options
- identifying who you want to incentivise
- deciding what you want the arrangement to achieve
For businesses with existing CSOP arrangements, it's worth reviewing scheme documents and upcoming option grants.
The new rules won't automatically change existing agreements. However, qualifying existing CSOP options may be amended to benefit from the longer 15-year exercise period, provided the amendments comply with the law.
The Budget also introduced changes to the separate EMI scheme, including extending the exercise window following a disqualifying event from 90 to 180 days and simplifying option-grant reporting.
If your business operates an EMI scheme, think about whether you need to review those existing arrangements too.
Reviewing your employee share incentives?
The expanded EMI2 rules are an opportunity to reconsider how employee share ownership could support your business's plans for recruitment, retention and growth.
Our employee share schemes solicitors can help you assess your options, design an appropriate scheme and prepare the necessary legal documents, working alongside specialist tax advisers where needed.
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