In brief
On 28 October 2026, the new Labour Chancellor of the Exchequer, John Healey, delivered his first Budget statement. The employee tax burden is set to continue to rise through the continued freezing of personal allowances and basic rate limits. Disappointingly for the share plan industry, the Government continues to ignore calls for reform to the Share Incentive Plan (SIP) and Save As You Earn (SAYE) regimes.
On the positive side, threatened increases to capital gains tax rates have not materialised. In unexpected good news, the Government has doubled the individual limits under the Company Share Option Plan (CSOP), which the Government is now referring to as Enterprise Management Incentives 2 (EMI2).
Key takeaways
- EMI2 (formerly CSOP) individual option limit doubles from GBP 60,000 to GBP 120,000 from 6 April 2027, making the scheme significantly more valuable for employees.
- EMI and EMI2 will operate independently from April 2027 — companies can use both schemes simultaneously without the current overlap/counting rule applying.
- The Business Asset Disposal Relief (BADR) lifetime limit is halved from GBP 1 million to GBP 500,000 for qualifying disposals made on or after 6 April 2027.
- EMI notification process is simplified: from 6 April 2027, companies no longer need to file a separate His Majesty's Revenue and Customs (HMRC) notification for each EMI option grant, reducing the administrative burden.
- The main headline rates and thresholds for both income tax and capital gains tax (CGT) remain unchanged.
In more detail
Employee share schemes
An expansion of CSOP
From 28 October 2026, CSOP will be rebranded as EMI2, although the CSOP name will remain in the legislation.
There are a number of reforms to CSOP/EMI2, designed to make the scheme more generous. These include:
- The maximum value of shares over which an individual may be granted options under CSOP/EMI2 (valued at the date of grant) will be increased from GBP 60,000 to GBP 120,000;
- The interaction between the individual CSOP/EMI2 and EMI option limits will be removed, allowing employers to offer employees options under both schemes simultaneously, each subject to its own standalone cap; and
- The period in which CSOP/EMI2 options can be exercised while retaining the relevant tax advantages will increase from 10 years to 15 years.
However, the condition that the options under CSOP/EMI2 must be held for three years in order to benefit from full tax-advantaged treatment remains unchanged.
Changes to EMI
There are also reforms to the existing EMI regime. These include:
- From 6 April 2027, the EMI exercise window following a disqualifying event will be extended from 90 days to 180 days.
- The existing EMI exception for Employee Ownership Trusts (EOTs) will also be extended to companies that are in the process of becoming controlled by an EOT. This removes the current gap in the rules.
- The Government is also simplifying the administration of EMI options. For options granted on or after 6 April 2027, businesses will no longer have to submit a separate notification of an EMI option grant to HMRC. Instead, the grant will be reported through the company’s end-of-year return.
The combined effect should be a more flexible employee incentives framework and a reduction in the administrative burden associated with EMI grants.
Future considerations for employers
Employers should consider:
- Whether to take advantage of the increased GBP 120,000 CSOP/EMI2 limit.
- An audit of existing EMI and CSOP/EMI2 plan rules.
The extension of the exercise period from 10 to 15 years may also provide greater flexibility when designing longer-term incentive arrangements.
Business Asset Disposal Relief: lifetime limit halved/new Founders’ Relief
From 6 April 2027, the lifetime limit for BADR will be reduced from GBP 1 million to GBP 500,000 for qualifying disposals made on or after that date.
The Government has announced Founders’ Relief, a new CGT relief for founders and significant early investors in high growth, innovative UK companies. It will give a reduced 10% rate of CGT on qualifying disposals of shares or securities made on or after 6 April 2027, up to a lifetime limit of GBP 10 million. The limit applies separately to each qualifying individual, meaning that more than one person can claim relief in relation to the same company. The limit will be reduced by amounts claimed under the BADR and Investors’ Relief limits from 6 April 2027.
Restrictions on non-compete clauses
The Government intends to restrict non-compete clauses from acting as a barrier to hiring for start-ups, scale-ups, and the broader everyday economy.
The detailed structure of the law has not been fully finalised yet; instead, the Government announced it will launch a wide-reaching consultation on restrictive practices shortly, with a definitive government stance and draft policy expected in early 2027 prior to formal legislation.
Final comments
For all the focus on future investment, the Budget represents something of a mixed picture for employee ownership. While CSOP/EMI2 has been expanded, there is no corresponding reform of the all-employee SIP and SAYE regimes — this lack of reform has been a recurring point.
For specific advice on these developments and to help your business navigate the changes, please speak to your usual Baker McKenzie contact. Our Employment & Compensation and Tax teams are available to assist with share scheme structuring, exit planning, and compliance strategy ahead of the April 2027 effective date.