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Open letter

The Chancellor of the Exchequer
HM Treasury
1 Horse Guards Road
London SW1A 2HQ

March 2, 2020

Dear Chancellor,

Budget 2020: Impact of ER withdrawal on EMI options

Given the speculation in the press regarding the withdrawal of Entrepreneurs’ Relief (ER), I wanted to bring to your attention that Enterprise Management Incentive (EMI) share options rely on ER for their tax efficiency, in enjoying a 10% rate of capital gains tax.

EMI options are only available for small trading companies, and are very widely used by biotechnology and technology companies. We have just begun a survey of UK employee equity in biotechnology companies. Results so far show that 90% of EMI eligible companies use EMI options on an all-employee basis. They are a crucial part of the offer to employees at all levels in taking the risk of working in small R&D-based companies.

A wholesale withdrawal of ER would remove this EMI incentive. For employees with options already granted on the promise of a 10% tax rate this would amount to retrospective taxation.

We would therefore urge you to not repeat the mistakes of a previous Government, when it removed taper relief, the forerunner to ER, without considering the impact on EMI options. They had to correct the position later, after their error was pointed out to them. If you do consider that ER has to be reformed now, then we recommend that the EMI aspects of this relief are left unchanged.

Yours sincerely 

Colin Hailey
Partner