Section 236H — Taxation of Chargeable Gains Act 1992: Disposals to employee-ownership trusts

Disposals to employee-ownership trusts 236H 1 This section applies where—

a a person other than a company (“P”) disposes of any ordinary share capital of a company (“C”) to the trustees of a settlement, b the relief requirements are met, and c P makes a claim under this section.

2 Where this section applies, section 17(1) (disposals and acquisitions treated as made at market value) does not apply to the disposal and, taking account of that disapplication—

a if a gain accrues, subsection (2A) applies, or b if no gain accrues, subsection (3) applies. 2A Where this subsection applies—

a only 50% of the gain is a chargeable gain, b the disposal is not to be regarded as a qualifying business disposal for the purposes of Chapter 3 of Part 5 (business asset disposal relief),

c the ordinary share capital disposed of is to be regarded, immediately before the disposal, as comprised wholly of excluded shares for the purposes of Chapter 5 of that Part (investors’ relief),

and d the acquisition by the trustees is to be treated for the purposes of this Act as made for the consideration for the disposal less an amount equal to so much of the gain as is not a chargeable gain as a result of paragraph (a).

3 Where this subsection applies, the disposal, and the acquisition by the trustees, are to be treated for the purposes of this Act as being made for such consideration as to secure that neither a gain nor a loss accrues on the disposal. 4 “The relief requirements” are—

za that the trustees of the settlement are resident in the United Kingdom at the time of the disposal and continue to be UK resident for the remainder of the tax year in which that time falls, a that C meets the trading requirement (see section 236I) at the time of the disposal and continues to meet that requirement for the remainder of the tax year in which that time falls, b that the settlement meets the all-employee benefit requirement at the time of the disposal and continues to meet that requirement for the remainder of the tax year in which that time falls (see sections 236J to 236L and subsection (5) of this section),

ba that the settlement meets the trustee independence requirement (see section 236LA) at the time of the disposal and continues to meet that requirement for the remainder of the tax year in which that time falls, c that the settlement does not meet the controlling interest requirement (see section 236M) immediately before the beginning of the tax year in which the disposal occurs, but—

i it meets that requirement at the end of that tax year, and ii if it met the requirement at an earlier time in that tax year (whether before or after the time of the disposal) it continued to meet it throughout the remainder of that tax year, ca that the trustees have taken all reasonable steps to secure that—

i the consideration for the disposal does not exceed the market value of the ordinary share capital at the time of the disposal, and ii where some or all of the consideration for the disposal is deferred, that the rate of any interest payable in relation to the deferral does not exceed a reasonable commercial rate, d that the limited participation requirement is met (see section 236N),

and e that this section does not apply in relation to any related disposal by P or a person connected with P which occurs in an earlier tax year.

5 For the purposes of subsection (4)(b)—

a unless the settlement met the all-employee benefit requirement by virtue of section 236L (cases in which all-employee benefit requirement treated as met) at the time of the disposal, that section does not apply for the purposes of determining whether the settlement continues to meet that requirement after the disposal, and b if, at the time of the disposal, the settlement met that requirement by virtue of section 236L and later continues to meet it otherwise than by virtue of that section, it may not again meet the requirement by virtue of that section.

6 A disposal in an earlier tax year is “related” to the disposal in question if—

a both disposals are of ordinary share capital of the same company, or b the disposal in the earlier tax year is of ordinary share capital of a company which is, or at the time of that disposal was, a member of the same group as the company whose ordinary share capital is the subject of the disposal in question.

7 A claim under this section must include—

a information to identify the settlement, b C’s name and the address of its registered office, ... ba the number of persons who at the time of the disposal are employees of—

i C, or ii if C is the principal company of a trading group (within the meaning of section 236I(3)), any member of that group, c the date of the disposal and the number of shares disposed of , and d the consideration for the disposal (including amounts of consideration due after the disposal). 7A But where the person making the claim is unable to include the number of employees in the claim as required by subsection (7)(ba) because they have been unable to ascertain that number, that requirement is to be taken to be met if—

a the person has taken all reasonable steps to ascertain that number, and—

b the claim contains a statement that the person has taken such steps.

8 Section 236O makes provision about events which prevent a claim being made under this section and circumstances in which a claim is revoked.