4/14/2026 3:32:08 PM | 4 minute read

Recent Changes to EMI and VCT/EIS Effective from 6 April 2026

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Tracy Fisher

Thomas Braiden

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Tracy Fisher

Thomas Braiden

Introduction

On 6 April, significant reforms to the Enterprise Management Incentive (EMI) scheme, Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) came into effect, opening up these tax incentive schemes to a wider range of UK companies. This article summarises these reforms and outlines their practical implications.

Enterprise Management Incentive Scheme (EMI)

Background

EMI is a UK tax‑advantaged share option scheme historically limited to smaller companies. EMI enables companies to reward and retain key talent by affording employees the ability to acquire equity interests in a tax-efficient manner, aligning employee incentive with company growth.

Under EMI, employees can be granted options to acquire shares such that, provided the options are granted at market value, no income tax or NIC tax charges arise on exercise. Capital Gains Tax may be payable on a subsequent sale on any proceeds achieved above the exercise price but can often be reduced to 10% under Business Asset Disposal Relief, making EMI one of the most tax‑efficient forms of employee equity.

While EMI remains subject to strict eligibility criteria, the limits have been relaxed with effect from 6 April 2026, opening EMI to a broader range of companies that previously would not have qualified.

Changes to EMI (effective from 6 April 2026)

Higher Employee Limit – The previous requirement for a company to have fewer than 250 full-time employees has increased to 500 full-time employees.
Higher Gross Assets Threshold – The previous requirement for a company to have gross assets not exceeding £30m has increased to £120m.
Larger EMI Option Pool – The maximum value of EMI options that a company can grant has increased from £3m to £6m (based on market value at date of grant).
Longer Exercise Window – Options granted before 6 April 2026 must be exercised within 10 years to retain tax-advantaged status. For options granted on or after 6 April 2026, this window has increased to 15 years. This change may apply retrospectively to EMI contracts not yet expired or exercised.
Administrative Simplification – The previous requirement to notify HMRC within 92 days of an option grant has been removed. Instead, EMI options are now reported through a company’s annual Employment Related Securities (ERS) return.

Practical Implications and Next Steps

Re-assessment of Eligibility – The wider eligibility thresholds mean larger companies now qualify for EMI. Companies should re-assess their eligibility under the new limits.
Updating Option Pools – Companies may wish to consider expanding existing option pools to incentivise broader leadership teams or attract senior external talent without resorting to less tax‑efficient alternatives.
Exit Timing – The longer exercise window reduces pressure around exit timing for early-stage companies with extended R&D or commercialisation cycles, with less risk of options lapsing prematurely. Vesting and exit timing should be reviewed in light of the longer exercise window.
Reporting – Companies should prepare updated administrative processes for ERS reporting.

Venture Capital Trusts (“VCTs”) and Enterprise Investment Scheme (“EIS”)

Background

EIS affords tax incentives to UK individuals investing in shares issued by early‑stage companies. The benefits include income tax relief on the amount invested, tax-free dividends and exemption from capital gains tax on end disposal of the shares.

VCTs are UK tax‑advantaged pooling vehicles through which UK individuals can invest indirectly in a range of EIS-type companies, with similar tax benefits as direct EIS investment.

Both schemes operate under strict eligibility rules, which have also relaxed from 6 April 2026.

Changes to VCT and EIS (effective from 6 April 2026)

Higher Annual Fundraising Limits – Annual investment limits for companies fundraising under VCT/EIS have doubled from £5m to £10m (£10m to £20m for knowledge-intensive companies).
Higher Lifetime Fundraising Limits – Lifetime investment limits for companies fundraising under VCT/EIS have doubled from £12m to £24m (£20m to £40m for knowledge-intensive companies).
Higher Gross Assets Threshold – Companies receiving VCT/EIS investment previously required gross assets not exceeding £15m (pre-investment) and £16m (post-investment). This has increased to £30m and £35m respectively.
Changes to Investor Tax Relief – VCT investors could previously claim income tax relief at 30% of up to £200k annual investment (provided their shares were held for at least 5 years). However, VCT income tax relief has been reduced from 30% to 20%. EIS income tax relief remains at 30%.

Practical Implications and Next Steps

For Companies – The increased asset and fundraising limits mean EIS and VCT investors can now invest in larger, more mature early‑stage businesses, enabling larger funding rounds and extended growth support. Companies should re‑assess eligibility for EIS/VCT funding under the new limits and consider planning larger funding rounds where investor demand exists.
For Investors – The reduction in VCT income tax relief was intended to rebalance incentives to make EIS (which remains at 30%) relatively more attractive. Investors should review their allocation between VCT and EIS investments, potentially rebalancing towards EIS in light of the change.

How Brown Rudnick Can Help

Brown Rudnick’s Corporate and Capital Markets Team has deep experience in this area of law. Should you require further guidance following the changes that took effect on 6 April 2026, please contact the team.