What is the trustee independence requirement under section 236LA of the Taxation of Chargeable Gains Act 1992?

Section 236LA sets out a two-limb test for employee-ownership trusts. First, fewer than half the trustees may be excluded participators. Second, excluded participators must not have control of the settlement. Both conditions must be met for the trust to satisfy the trustee independence requirement under United Kingdom law.

Who is an excluded participator for the purposes of section 236LA TCGA 1992?

An excluded participator is broadly a participator in the sponsoring company as defined for the all-employee benefit requirement in section 236J. However, a person connected solely as a trustee of another settlement is disregarded. A company is also treated as an excluded participator if 50% or more of its directors are themselves excluded participators.

What constitutes control of a settlement by excluded participators under section 236LA?

Excluded participators have control if they can, without independent trustees, dispose of or invest trust property, vary or terminate the settlement, add or remove beneficiaries, appoint or remove trustees, or direct the exercise of those powers. Both direct powers and the ability to direct such actions are caught by the provision.

Can the trustee independence requirement be circumvented by using a corporate trustee?

No. Section 236LA prevents circumvention by providing that a company is treated as an excluded participator if 50% or more of its directors are excluded participators. This stops the interposition of a corporate trustee whose board is dominated by persons the rule is designed to exclude from controlling the trust.

Taxation of Chargeable Gains Act 1992 section 236LA

Trustee independence requirement

Section 236LA sets out the conditions a settlement must meet to satisfy the trustee independence requirement, ensuring that certain participators connected with the sponsoring company do not dominate the trust's governance.

A settlement meets the trustee independence requirement only if fewer than half the trustees are excluded participators, and excluded participators do not control the settlement.
An excluded participator is broadly a participator in the sponsoring company (as defined for the all-employee benefit requirement), but excluding persons who qualify solely because they are connected as trustees of another settlement; a company is also an excluded participator if half or more of its directors are themselves excluded participators.
Excluded participators are treated as having control of the settlement if one or more of them, acting alone or together without the independent trustees, have the power to deal with trust property, vary or end the trust, change beneficiaries, or appoint or remove trustees.
The power to direct any of these actions is itself treated as control, so indirect influence by excluded participators is also caught.

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