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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Reliefs: employee-ownership trusts: conditions: the 'all-employee benefit requirement': 'authorised transfer'

TCGA92/S236J(7)

An ‘authorised transfer’ is, subject to the conditions below, a transfer of property consisting of or including any ordinary share capital of a company.  That company is referred to as the ‘transferred company’.

The conditions are that

  • the ‘transferred company’ meets the ‘trading requirement’, and
  • the transfer is made to the trustees of a settlement which
    • meets the ‘controlling interest requirement’ with respect to the ‘transferred company’ immediately after the transfer, and
    • meets the ‘all-employee benefit requirement’ with respect to the ‘transferred company’.

For these purposes the trustees of a settlement must actually meet the ‘all-employee benefit requirement’.  If they do not, but can be treated as meeting it, see CG67844, the transfer is not an ‘authorised transfer’.

Also, in applying this guidance, references to C in CG67838, CG67839, CG67850 and CG67876 should be read as references to the ‘transferred company’.

The rules covered in CG67835 mean that in general trustees may not transfer settled property to another trust without affecting the availability of relief.  However, in accordance with the paragraphs above, the outcome can be different where the trustees transfer settled property and the trust receiving it becomes an EOT as a result of the transfer.  Subject to the other requirements being met, the transferring trustees may claim relief under TCGA92/S236H on their gains in such cases.

Example 7

The trust deed of the Furud Widgets Limited EOT permits the trustees, at their absolute discretion, to transfer the trust property to the trustees of another settlement.  The Furud Widgets Limited EOT therefore does not actually meet the ‘all-employee benefit requirement’, as it is able to make a transfer of funds that is not an ‘authorised transfer’ to another settlement. 

Example 8

The trust deed of the Gienah Widgets Limited EOT permits the trustees to transfer trust property to the trustees of another settlement only if the trusts of that other settlement allow it to meet the ‘all-employee benefit requirement’ as stated at TCGA92/S236J(1).  Subject to meeting the other conditions listed in CG67835, the EOT can actually meet the ‘all-employee benefit requirement’.