Income Tax (Earnings and Pensions) Act 2003 section 534

Disqualifying events relating to relevant company

Section 534 identifies the events relating to the company whose shares are under an Enterprise Management Incentive (EMI) option that would cause that option to lose its qualifying status.

• A qualifying EMI option is disqualified if the relevant company becomes a 51% subsidiary of another company, falls under the control of another company (or that company plus connected persons) without becoming its 51% subsidiary, or ceases to meet the trading activities requirement — unless the company is subject to an employee-ownership trust.
• Where a replacement option has been granted, a change of ownership or control event does not disqualify the old option provided it occurs during the period beginning when the replacement option window opened and ending when rights under the old option are released.
• A disqualifying event is also treated as occurring if the company only qualified at the time the option was granted because it was preparing to carry on a qualifying trade, and either those preparations cease or two years pass from the grant date without the company (or any group member, if it is a parent company) actually beginning that trade.
• For the purposes of the two-year rule, a replacement option is treated as having been granted on the same date as the original option it replaced.