Section 236N — Finance Act 2014: Limited participation requirement

Limited participation requirement 236N 1 The limited participation requirement is met if Conditions A and B are met.

2 Condition A is that there was no time in the period of 12 months ending immediately after the disposal mentioned in section 236H(1) when—

a P was a participator in C, and b the participator fraction exceeded 2/5.

3 Condition B is that the participator fraction does not exceed 2/5 at any time in the period beginning with that disposal and ending at the end of the tax year in which it occurs.

4 But a time which falls in a period during which the participator fraction exceeded 2/5 is to be disregarded for the purposes of subsection (2)(b) and (3) if—

a that period lasts no more than 6 months, and b the fraction exceeded 2/5 during that period by reason of events outside the reasonable control of the trustees. 5 “ The participator fraction ” means— NP NE where— NP is the sum of— the number of persons who at the time in question are both— participators in C, and employees of, or office-holders in, C, and the number of other persons who at that time are both— employees of, or office-holders in, C or, if C is the principal company of a trading group, any member of the group, and connected with persons within paragraph (a); NE is the number of persons who at that time are employees of C or, if C is the principal company of a trading group, any member of the group.

6 The participators in C who are referred to in subsections (2) and (5) do not include any participator who—

a is not beneficially entitled to, or to rights entitling the participator to acquire, 5% or more of, or of any class of the shares comprised in, C's share capital, and b on a winding-up of C would not be entitled to 5% or more of its assets.

7 In this section—

a “ participator ” has the meaning given by section 454 of CTA 2010, and b references to a participator in a company are, in the case of a company which is not a close company (within the meaning of Chapter 2 of Part 10 of that Act), to be construed as references to a person who would be a participator in the company if it were a close company.