haysmacintyre advised on granting Enterprise Management Incentive (EMI) options to UK based employees, over units in the Bermudan LLC parent entity.

Whilst the options were granted to employees of a UK subsidiary, it was not possible to grant EMI options over shares in that UK subsidiary. The only way to secure the UK tax advantages of EMI were via options at Bermudan parent level.

EMI options over foreign registered Limited Liability Company (LLC) units are complicated by the LLC units needing to fall within the UK definition of ‘Ordinary Share Capital’. Whilst HMRC provides some guidance on this matter, there is no clear way of immediately determining this. Whether such units fall within this definition depends on the characteristics of the units in question.

Our team put forward an argument as to why the units are Ordinary Share Capital, which HMRC accepted. We also agreed a valuation of the units with HMRC along with preparing the relevant EMI documentation to implement the EMI option grants. This allowed for the highly tax efficient EMI scheme to be offered to UK employees. The confirmation of the LLC units being Ordinary Share Capital may also facilitate future planning, such as ensuring group relief is available between parent and subsidiary and ensuring future gains on LLC units can qualify for Business Asset Disposal Relief, to reduce the Capital Gains Tax rate.