Taxation of Chargeable Gains Act 1992 section 238

Approved profit sharing and share option schemes

Section 238 sets out how capital gains tax applies to shares held under approved profit sharing schemes, including the treatment of participants' entitlements, the interaction between income tax charges and CGT computations, and the exemption from CGT on appropriation of shares by trustees to employees.

• An employee participating in an approved profit sharing scheme is treated as absolutely entitled to their shares as against the scheme trustees from the date of appropriation, with the shares deemed acquired at their open market value on that date.
• Any income tax charge arising on the shares under the profit sharing scheme rules does not reduce the disposal consideration for CGT purposes, nor does it affect whether a distribution is classified as a capital distribution.
• The ordering rules used under the income tax profit sharing scheme provisions (for determining which shares are disposed of first) do not override the normal CGT rules for computing gains on part disposals of shares acquired at different times.
• Trustees are exempt from CGT when they appropriate shares to an employee, provided the appropriation takes place within eighteen months of the trustees acquiring the shares, with a first-in, first-out rule applied to determine whether this time limit is met.