Taxation of Chargeable Gains Act 1992 section 239

Disposals to employee trusts

Section 239 provides capital gains tax relief when an individual or a company transfers an asset to an employee trust, allowing the disposal to be treated on a no gain/no loss basis or with a reduced chargeable gain, provided the trust qualifies for favourable inheritance tax treatment and certain conditions regarding participators are met.

• Where an individual or close company transfers an asset to a qualifying employee trust that is exempt from inheritance tax, the normal market value rule is disapplied and the disposal is instead treated on a no gain/no loss basis if gifted or sold below allowable cost
• Non-close companies can also benefit from the relief where they transfer assets on non-arm's length terms to trusts set up for the benefit of all or most of the company's employees (or those of the company and its subsidiaries)
• Relief is denied if the trust terms permit the property to benefit significant participators (broadly, those holding 5% or more of the company's shares or winding-up entitlements), former participators within the previous ten years, or persons connected with them
• For close company disposals, the amount apportioned to shareholders under the undervalue transfer rules is based on the lower of the company's allowable acquisition costs and the market value of the asset, rather than market value alone