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HMRC internal manual

Capital Gains Manual

Reliefs: employee-ownership trusts: conditions: the 'limited participation requirement'

TCGA92/S236N(1)-(4) and FA14/Sch 37, Para 3(b)

The ‘limited participation requirement’ is met if both of the conditions below are fulfilled.

  • There was no time in the period of 12 months ending immediately after the disposal when P was a participator in C and the ‘participator fraction’ exceeded two-fifths.
  • The ‘participator fraction’ does not exceed two-fifths at any time in the period beginning with the disposal and ending at the end of the tax year in which it occurs.

Where the transitional rules apply, that is in determining relief on disposals on or after 6 April 2014 and before 26 June 2014, the second condition does not have to be met.

For the purposes of the above conditions, a time that falls in a period during which the ‘participator fraction’ exceeded two-fifths is to be disregarded if

  • that period lasts no more than 6 months and
  • the fraction exceeded two-fifths during that period by reason of events outside the reasonable control of the trustees.

For the meaning of ‘participator fraction’ see CG67856.

The purpose of this requirement is to guard against relief being given to individuals who had a substantial shareholding in the company in circumstances where they, along with other claimants, made up a significant proportion of the business’s workforce before and after the creation of the EOT.