Draft legislation published allowing existing CSOP and EMI contracts to be amended to include PISCES

On 21 July 2025, the draft legislation forming the Finance Bill 2025-26 was published. This includes measures delivering on the Government’s commitment to put forward legislation allowing existing CSOP and EMI contracts to be amended to include PISCES as an exercisable event, whilst maintaining the tax advantages that the schemes offer.

PISCES is a new type of stock exchange which will allow private companies to trade their shares on a secondary market during intermittent “trading windows”. This platform aims to enhance the growth of private secondary markets, granting access to liquidity for shareholders, whilst allowing companies to remain private. The legislation establishing the legal framework for PISCES was laid on 15 May 2025, and the Financial Conduct Authority (FCA) published its final rules and PISCES Sourcebook on 10 June 2025. For more on PISCES generally see PISCES Regulations come into force today and Key aspects of the FCA’s PISCES Sourcebook.

EMI and CSOP Schemes

Many private companies have established tax-advantaged share schemes, such as EMI and CSOP schemes to reward employees for their loyalty and assistance in growing their business. Commonly, EMI schemes are drafted so that they are only exercisable in connection with an exit of the company (for example on a share sale or initial public offering).

As part of the Spring Statement 2025, in May 2025, HMRC published a technical note regarding the tax consequences for companies and employees trading their shares on PISCES. In relation to legacy tax advantaged schemes (i.e. schemes which have already been put in place), the technical note stated that PISCES trading windows can be specified events for exercising options, provided they are explicitly included in the option agreement from the time of grant. However, the note further explained that existing option agreements couldn’t be amended to include a PISCES trading window as a specified trading event or “exit” event whilst retaining their tax-advantaged status. HMRC’s position in the technical note was that such an amendment would amount to a change to a fundamental term of an EMI option, resulting in a deemed surrender and regrant of the option, or to a release and re-grant of a CSOP option. The technical note ended with a commitment from the Government to consider legislating to allow existing EMI and CSOP contracts to be exercised during a PISCES trading window.

The draft Finance Bill 2025-26 delivers on this commitment by introducing a measure that will allow existing EMI and CSOP option agreements to be amended to include a sale on a PISCES platform as an exercisable event without losing the tax advantages that the schemes offer. However, in order for such an amendment to have the desired effect, there are three conditions that must all be met:

• a share option under a CSOP scheme or a qualifying EMI option (as applicable) must be granted before the Finance Bill 2025-26 receives Royal Assent;
• the terms (being ‘the times at which the option may be exercised (in whole or in part)’) of the option must be varied on or after 15 May 2025; and
• the sole effect of the variation must be that, provided that the shares are or will be PISCES shares, the option may be exercised (to any extent), on the condition that the shares are then immediately sold on a PISCES.

The variation must also be carried out by a written agreement, to which the person entitled to exercise the option is a party, or that person must be notified of the variation in writing.

Any variation meeting these requirements will be treated, for the purposes of the CSOP code and the EMI code (as applicable), as if it had been included in the option at the time it was granted. The effect being that the variation will not be treated as a change in the fundamental terms of the contract.

Finally, in line with the above, HMRC also updated their technical note published as part of the Spring Statement 2025, noting that if an option is amended in line with the draft legislation, such an amendment will not be treated as a change to a fundamental term of the option. The updated technical note has also confirmed that a PISCES exercise event must be explicitly written into an option agreement from the time the options are granted, or amended to include PISCES in accordance with the draft legislation. It confirmed that it will not be possible to use a discretion clause to allow options to be exercised on a sale on a PISCES platform and retain the tax advantages.

Conclusion

The draft legislation is a key aspect in helping to ensure that companies are not dissuaded from trading on PISCES and employees who hold options under existing schemes are not disadvantaged. It will have retrospective effect on and after 15 May 2025, and prior to the legislation being enacted, HMRC will be able to use collection and management powers to refrain from collecting tax that might be due on exercise. Consequently, this change could benefit any EMI or CSOP option holders who are permitted to take part in the first tranche of PISCES trading events, which are expected to take place later this year.