Taxation of Chargeable Gains Act 1992 section 236H

Disposals to employee-ownership trusts

Section 236H provides capital gains tax relief when an individual sells ordinary shares in a company to an employee-ownership trust, allowing the disposal to be treated on a no-gain, no-loss basis provided a number of conditions are satisfied.

• When an individual sells ordinary shares to an employee-ownership trust and claims relief, the disposal is treated as made for a consideration that produces neither a gain nor a loss, effectively deferring or eliminating the capital gains tax charge.
• Several relief requirements must all be met: the trustees must be UK resident, the company must be a trading company, the trust must benefit all employees on broadly equal terms, the trust must meet a trustee independence requirement, and by the end of the tax year the trust must hold a controlling interest in the company.
• Additional safeguards apply: the purchase price must not exceed market value, any deferred consideration must bear interest at no more than a reasonable commercial rate, the limited participation anti-avoidance requirement must be satisfied, and relief cannot be claimed if the same individual (or a connected person) has already received relief on a related share disposal in an earlier tax year.
• The claim must include details identifying the trust, the company's name and registered office, the number of employees at the time of disposal, the date and number of shares disposed of, and the consideration (including any deferred amounts); further provisions can revoke the relief if disqualifying events occur.