Income Tax (Earnings and Pensions) Act 2003 section Schedule 5 paragraph 41

Grant of replacement option

Section Schedule 5 paragraph 41 sets out the rules for replacing an existing EMI share option with a new equivalent option when a company undergoes a reorganisation and is acquired by another company.

• When a company is reorganised, the holder of a qualifying EMI option may release their old option in exchange for an equivalent new option over shares in the acquiring company
• The replacement must meet timing requirements (paragraph 42) and additional criteria (paragraph 43) to qualify as a valid replacement option under the EMI code
• A valid replacement option is generally treated as if it had been granted on the same date as the original old option, preserving the original timeline for EMI purposes
• The total value of shares under the replacement option is deemed equal to the value of shares under the old option immediately before the release, with a proportionate adjustment if the replacement option has been partially exercised