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HMRC internal manual

Capital Gains Manual

From
HM Revenue & Customs
Updated
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Employee shareholder shares: no exemption if employee or connected person has a material interest

TCGA92/S236D

An employee shareholder share is not exempt if, on the date on which the share is acquired, the employee or an individual then connected to the employee has a material interest in the employer company or a parent undertaking of the employer company. Neither is the share exempt if that employee or individual had such an interest at any time in the previous year.

For the meaning of ‘parent undertaking’ see Section 1162 Companies Act 2006. It includes a company that has a majority of the voting rights in the employer company.

Material interest

An individual has a material interest in a company if at least 25% of the voting rights in the company are exercisable by the individual, by persons connected with the individual, or by the individual and connected persons together.

An individual has a material interest in a close company (including a company that would be a close company but for section 442(a) or sections 446 and 447 CTA2010) if the individual, persons connected with the individual, or the individual and persons connected with the individual together have rights as would, in the event of a winding up, give an entitlement to receive at least 25% of the assets that would then be available for distribution.

An individual will also be treated as having a material interest in a company at any time

  • if the individual, persons connected with the individual, or the individual and persons connected with the individual have an entitlement to acquire such rights as would (together with any existing rights) give the individual a material interest in the company.

Or

  • there are arrangements in place between the employer company or any parent undertaking of the employer company and the individual, or persons connected with the individual, or the individual and persons connected with the individual together, which enable the individual or those persons to acquire such rights as would (together with any existing rights) give the individual a material interest in the company.