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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Reliefs: employee-ownership trusts: identification of shares


Special rules for identification of shares apply where the trustees of a settlement hold

  • shares that were acquired in either of the situations described in CG67801, that is where there was an actual or deemed disposal of the shares that qualified for relief, and which have not subsequently been disposed of and reacquired, known as ‘EOT exempt shares’, and
  • shares other than those above that would be of the same class but for the provisions of TCGA92/S104(4A), see CG51576

For these purposes shares in a company are not to be treated as being of the same class unless,

  • they are so treated by the practice of a recognised stock exchange, or
  • would be so treated if they were dealt with on such an exchange.

If the trustees dispose of only some of the shares so held, they can determine what proportion of the shares disposed of are ‘EOT exempt shares’.  This is subject to the trustees holding sufficient ‘EOT exempt shares’ prior to the disposal.  Where the trustees are treated as making a deemed disposal falling within CG67861 or CG67862, the rules do not permit them to mitigate the effect of it by exercising such choice.

Because of the ‘no gain/no loss’ mechanism by which relief was given on their acquisition, ‘EOT exempt shares’ may stand at a considerable gain in the trustees’ hands. This provision allows the trustees to avoid crystallising some or all of that gain on disposals where they also hold other shares carrying a lesser gain.