For businesses using Enterprise Management Incentives (EMI) and Company Share Option Plans (CSOP), safeguarding the tax advantages is important. The use of discretion in such plans has come under the spotlight recently with updated HMRC guidance. The new Private Intermittent Securities and Capital Exchange System (PISCES) also means companies have an opportunity to update plan documents without losing the tax advantages.
General position on discretion
The terms of a tax-advantaged share option must be fixed at grant. Even if managers have broad discretion to make changes to such plans, any material change, such as adding new exercise triggers, can be a deemed re-grant, resulting in the loss of tax-favoured status.
Exercise of that discretion is only “acceptable” if it operates within parameters explicitly set out at grant.
For example:
| Scenario |
Acceptable and stays tax-advantaged? |
| "Good leaver" early exercise permitted under explicit rules |
Yes |
| Extending exercise window for administrative reasons |
Yes |
| Allowing exercise for a secondary sale not specified at grant |
No |
| Accelerating vesting outside pre-specified events |
No |
Exercising discretion without care can trigger adverse income tax and National Insurance Contribution (NIC) liabilities. This is especially challenging for employers if the documents do not allow employer NICs to be transferred to the employee.
PISCES: A tailored exception
The PISCES platform is a new regulatory stock market designed to make secondary sales of private company shares quicker and easier.
HMRC has confirmed that adding PISCES as an exercise trigger through general discretion in legacy plans is not allowed and would result in loss of tax relief.
However, draft legislation published on 21 July 2025 allows existing EMI and CSOP agreements to be amended to include PISCES as a specified exercise event, without compromising tax-advantaged status, provided strict conditions are met as follows:
- the option must be granted on or before Royal Assent of the Finance Bill 2025-26 (expected in 2026);
- variation must occur on or after 15 May 2025;
- the change must only allow exercise when shares are sold on PISCES; and
- the change must be notified in writing to the option-holder.
Planning
The PISCES development offers a new flexibility to the strict discretion rules, but utilising this opportunity will require care. Now is therefore the time to:
- Review existing agreements and historic discretion use;
- Update plan rules for new grants;
- Prepare written amendments for historic awards to fit the draft legislation; and
- Engage option-holders early for agreement/notification.