Taxation of Chargeable Gains Act 1992 section 236P

Disposals to employee-ownership trusts

Section 236P provides for a deemed disposal and reacquisition of shares held by an employee-ownership trust when certain disqualifying events occur after the end of a protective period following the original relieved acquisition.

• Where shares were acquired by a trust with CGT relief under section 236H, a disqualifying event occurring after the end of the fourth tax year following the year of acquisition triggers a deemed disposal and reacquisition at market value
• Disqualifying events include the company ceasing to trade, the trust failing the all-employee benefit, trustee independence, or controlling interest requirements, the participator fraction exceeding 2/5, or the trustees acting outside the terms permitted by the all-employee benefit requirement
• On a disqualifying event, the trustees are treated as having sold and immediately rebought the relevant shares at market value, crystallising any latent gains or losses for CGT purposes
• A temporary breach of the trustee independence requirement caused solely by the death of a trustee (or a director of a corporate trustee) is ignored provided the requirement is restored within six months of the death