What is the £3 million EMI company-wide cap under Schedule 5 paragraph 7 ITEPA 2003?

Schedule 5 paragraph 7 of the Income Tax (Earnings and Pensions) Act 2003 imposes a cumulative £3 million ceiling on the total value of shares over which unexercised qualifying EMI options may exist in a single company at any given time. This limit applies across all employees, not individually.

What happens when a new EMI option grant causes the £3 million limit to be exceeded?

If a new EMI option grant pushes the total value beyond the £3 million cap, the option can still qualify but only for the portion that falls within the remaining headroom. The excess portion does not qualify. If the limit was already exceeded before the grant, the entire option fails to qualify.

How is excess allocated when two or more EMI options are granted simultaneously?

When simultaneous EMI option grants together breach the £3 million cap, the excess is divided proportionally among all options granted at that time based on the value of shares each option covers. This ensures fair allocation so no single option bears the full disqualification while others remain fully qualifying.

How are shares valued for the purposes of the £3 million EMI cap?

Share values for the £3 million cap are determined using the method set out in paragraph 5(6) to (8) of Schedule 5 ITEPA 2003. In practice, this means market value at the date the option is granted is used to assess whether the cumulative company-wide limit has been reached or exceeded.

Income Tax (Earnings and Pensions) Act 2003 Schedule 5 paragraph 7

Maximum value of options in respect of relevant company's shares

Schedule 5 paragraph 7 sets the overall cap on the value of shares over which unexercised qualifying options may exist in relation to a single company, and explains how excess is handled when the cap is breached.

The total value of shares under unexercised qualifying options in the relevant company must not exceed £3 million
No option can qualify if the £3 million limit has already been exceeded at the time it is granted
Where a single grant pushes the total over the £3 million limit, the option only qualifies up to the amount within the limit — the excess portion does not qualify
Where two or more options granted at the same time cause the limit to be exceeded, the excess is divided proportionally among those options based on the value of shares each option covers

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