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HMRC internal manual

Capital Gains Manual

Reliefs: employee-ownership trusts: relief for deemed disposals under TCGA92/S71

TCGA92/S236Q and FA14/Sch37, Para 3(e)

This provides a similar relief to TCGA92/S236H, see CG67801, in circumstances where there is a deemed disposal by trustees because of the effect of TCGA92/S71. Similar conditions for the relief apply, and there are similar rules for preventing claims, withdrawing relief or crystallising gains in trustees’ hands when a disqualifying event occurs.

Relief is available where there is a deemed disposal by reason of the trustees of a settlement, (‘the acquiring trustees’), becoming absolutely entitled to settled property as against the trustees of that settled property (‘the transferring trustees’) and

  • that settled property is the ordinary share capital of a company,
  • the relevant ‘relief requirements’ are met, and
  • the ‘transferring trustees’ make a claim.

The relevant ‘relief requirements’ are the first to fourth requirements set out in CG67820.

Where a disposal qualifies for relief, this is given by the relevant disposal and acquisition being treated for the purposes of TCGA92 as being made for consideration that gives rise to neither a gain nor a loss on the disposal.  The ‘market value’ rule in TCGA92/S17(1) does not apply to such disposals.

For the purposes of deciding the consequences of a ‘disqualifying event’ the ‘acquiring trustees’ are treated as acquiring the property from the ‘transferring trustees’ at the time of the deemed disposal, in circumstances where TCGA92/S236H applies.  Where the ‘disqualifying event’ occurs after the end of tax year next following that in which the deemed disposal arises, the consequences parallel those described in CG67861. For the consequences in other circumstances, apart from those where the transitional rules apply, see CG67866.  

In applying the ‘relief requirements’ and the rules covered in CG67830 to CG67861 to deemed disposals under TCGA92/S71, references to ‘settlement’ should be read as references to the settlement whose trustees are the ‘acquiring trustees’.  Likewise, references to C should be read as references to the company mentioned in the first bullet point above.

Example 30

On 12 June 2014 the trustees of the Dheneb Widgets Limited EOT become absolutely entitled as against the trustees of the Dheneb Widgets Limited EBT to 80% of the ordinary share capital of Dheneb Widgets Limited.  The four relevant relief requirements were met and the trustees of the Dheneb Widgets Limited EBT made a claim for relief.

The trustees of the Dheneb Widgets Limited EOT sell 40% of their holding of shares in Dheneb Widgets Limited on 15 December 2017 and so the ‘controlling interest requirement’ is no longer met.  The trustees are treated as having disposed of and immediately reacquired at market value, immediately before the ‘disqualifying event’, the 80% of the company’s shares to which they became absolutely entitled on 12 June 2014.