Taxation of Chargeable Gains Act 1992 section 236N

Limited participation requirement

Section 236N sets out the limited participation requirement that must be met for a disposal to an employee ownership trust to qualify for capital gains tax relief, ensuring that no small group of participators and their connected persons makes up more than two fifths of the workforce.

• The participator fraction (the ratio of participator-connected employees to total employees) must not exceed 2/5 during the 12 months up to and including the disposal, and from the disposal to the end of that tax year.
• A temporary breach lasting no more than six months is ignored if it resulted from events outside the reasonable control of the trustees.
• Only participators holding 5% or more of any class of the company's shares, or entitled to 5% or more of its assets on a winding-up, are counted for these purposes.
• The participator fraction is NP divided by NE, where NP is the number of participator-employees plus employees connected with them, and NE is the total number of employees in the company or group.