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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Reliefs: employee-ownership trusts: conditions: the 'all-employee benefit requirement' and the 'equality requirement': 'eligible employee'

TCGA92/S236J(3)-(5) and (7)

Where C is a trading company, an ‘eligible employee’ is any individual who is employed by, or is an office holder of, that company.

Where C is the principal company of a trading group, an ‘eligible employee’ is any individual who is employed by, or is an office holder of, a relevant group company.  A company is a relevant group company where it is C or any company that is a member of the group of which C is the principal company.

A person continues to be an ‘eligible employee’ where

  • C has ceased to meet the ‘trading requirement’, or
  • the trustees have ceased to hold any shares in C, or
  • both the above have occurred,

and that person was an ‘eligible employee’ at any time during the period of two years ending immediately before either the first or second event above or, where both have occurred, the earlier of them.  This means that in certain exceptional circumstances, as a result of which there may be relatively few, or possibly no, ‘eligible employees’ under the main definition, the trustees will still be able to make distributions to beneficiaries on an appropriate basis.

Example 9

Hassaleh Widgets Limited permanently ceased to trade on 6 June 2015 and was subsequently liquidated.  The winding up was completed on 23 August 2016, at which time the trustees of the Hassaleh Widgets Limited EOT ceased to hold any shares in the company.  Any individual who was an ‘eligible employee’ of Hassaleh Widgets Limited at any time from 7 June 2013 to 6 June 2015 will continue to be an ‘eligible employee’ for the purposes of the ‘all-employee benefit requirement’.

An ‘excluded participator’, see CG67839, cannot be an ‘eligible employee’.