EXPLANATORY NOTE

1. This clause and Schedule make provision for capital gains roll-over relief where shareholders transfer shares to a trust set up under an employee share ownership plan approved under Schedule 8. Schedule 9 outlines the rules for the relief, including rules for reinvesting the proceeds of the transfer. The relief can be claimed on transfers of shares to an approved employee share ownership plan from Royal Assent.(*Rev3)

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1. Clause 48 inserts a new section 236A and a new Schedule 7C (set out in Schedule 9) into the Taxation of Chargeable Gains Act 1992.

 

Schedule 9

 

2. Paragraph 1 sets out the conditions for the relief.

 

3. Sub-paragraph (1) provides that a claimant who disposes of shares to the trustees of a plan trust can claim capital gains roll-over relief if the conditions are met..

 

4. Sub-paragraph (2) prevents a company from making a claim.

 

5. Sub-paragraph (3) explains that the transfer includes a transfer of an interest in shares and must be to an approved employee share ownership plan.

 

6. Paragraph 2 lists the conditions for the disposal.

 

7. Sub-paragraph (1) sets out the first condition which is that at the time the shares are disposed of, the employee share ownership plan must be approved.

 

8. Sub-paragraph (2) sets out the second condition which is that the shares disposed of to the employee share ownership plan must not be listed on a recognised stock exchange and must satisfy the requirements in Schedule 8 of the Finance Act 2000.

 

9. Sub-paragraph (3) sets out the third condition requiring the employee share ownership plan holds at least 10% of the ordinary share capital of the company.

 

10. Sub-paragraph (4) provides that shares awarded to individuals and held in the plan are included in calculating the 10% requirement in sub-paragraph 3.

 

11. Sub-paragraph (5) sets out the fourth condition which states that there must be no unauthorised arrangements where the claimant or a person connected with him can acquire shares from the employee share ownership plan during the proscribed period.

 

12. Sub-paragraph (6) defines ‘ordinary share capital, relevant company and relevant shares.

 

13. Paragraph 3 provides for the reinvestment of the disposal proceeds.

 

14. Sub-paragraph (1) applies when the claimant uses the consideration for the disposal of his shares to buy replacement assets in the acquisition period (including unconditional contracts to buy the assets). Replacement assets must be chargeable assets that are not shares or debentures in the company or any group company.

15. Sub-paragraph (2) applies when the claimant uses part of the consideration received for the shares unless the part reinvestment is less than the total gain

 

16. Paragraph 4 defines the terms used in paragraphs 2 and 3.

 

17. Paragraph 5 sets out the terms on which the relief can be claimed.

 

18. Sub-paragraph (1) provides that where a claimant is entitled to claim relief and does so within 2 years of the acquisition of replacement assets, he is treated as if the disposal is for an amount that would give rise to neither a gain or a loss. The consideration for the replacement asset is reduced by what would otherwise have been the gain on the disposal of the shares.

 

19. Sub-paragraph (2) provides that where a claimant only reinvests part of the consideration for the shares in chargeable assets, the gain on disposal will be reduced in line with the part of the proceeds that have been applied in acquiring replacement assets and the acquisition cost of the replacement asset will be reduced by the same amount.

 

20. Sub-paragraph (3) provides that subparagraphs (1) and (2) do not affect other parties to the transactions.

 

21. Sub-paragraph (4) provides that any other provision of the Taxation of Chargeable Gains Act 1992 affecting the consideration for the disposal should be applied in priority to this relief.

 

22. Paragraph 6 sets out special provisions for dwelling houses (this includes part of a dwelling house and land).

 

23. Sub-paragraph (1) sets out the circumstances in which sub-paragraph (2) applies. Namely, where the replacement asset is a chargeable asset and a dwelling house but between acquisition and a claim being made it becomes the claimant’s or their spouse’s only or main dwelling house as provided for in section 222 Taxation of Chargeable Gains Act 1992.

 

24. Sub-paragraph (2) provides that in such circumstances, the replacement asset will be treated as if it is not a chargeable asset.

 

25. Sub-paragraph (3) provides that sub-paragraph (4) will apply where relief has been claimed, the replacement asset is a chargeable asset and a dwelling house but after a claim has made there is a time that it becomes the claimant’s or their spouse’s only or main dwelling house as provided for in section 222 Taxation of Chargeable Gains Act 1992.

 

26. Sub-paragraph (4) provides that in such circumstances, the replacement asset will be treated as if it is not a chargeable asset. The replacement asset will be treated as if it is not a chargeable asset immediately after it was acquired but the gain is treated as accruing at the time referred to in sub-paragraph (3) when the house becomes the only or main dwelling house.

 

27. Sub-paragraph (5) provides that sub-paragraph (6) will apply where the replacement asset is a chargeable asset in the form of an option to acquire a dwelling house, the option has been exercised and between the exercise of the option and the making of the claim, it has become the claimant’s or their spouse’s only or main dwelling house as provided for in section 222 Taxation of Chargeable Gains Act 1992.

 

28. Sub-paragraph (6) goes on to say that where sub-paragraph 5 applies the option will not be treated as the claimant’s chargeable asset.

 

29. Sub-paragraph (7) provides that sub-paragraph (8) will apply where the replacement asset is a chargeable asset in the form of an option to acquire a dwelling house which has been exercised and at a time after making the claim for relief, the house has become the claimant’s or their spouse’s only or main dwelling house as provided for in section 222 Taxation of Chargeable Gains Act 1992.

 

30. Sub-paragraph (8) goes on to say that in such circumstances, the option shall not be treated as a chargeable asset but the gain is only treated as accruing at the time referred to in sub-paragraph (7) when the house becomes the only or main dwelling house.

 

31. Sub-paragraph (9) defines individual to include a person who is entitled to occupy under the terms of a settlement.

 

32. Paragraph 7

33. Sub-paragraph (1) provides that sub-paragraph (2) will apply where the relief is claimed, the replacement asset is a chargeable asset in the form of shares and relief is claimed under the Enterprise Investment Scheme in Part VIII of the Taxes Act 1988 before relief under this provision is claimed.

 

34. Sub-paragraph (2) provides that in these circumstances, the shares are not treated as the claimant’s chargeable asset.

 

35. Sub-paragraph (3) sets out the circumstances in which sub-paragraph (4) applies. Namely, where the relief is claimed, the replacement asset is a chargeable asset in the form of shares and relief is claimed under the Enterprise Investment Scheme in Part VIII of the Taxes Act 1988 after relief under this provision is claimed.

 

36. Sub-paragraph (4) provides that in these circumstances, the shares are not treated as the claimant’s chargeable asset from the date of acquisition and adjustments should be made accordingly.

 

37. Paragraph 8 sets out the meaning of chargeable asset.

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Section 227 to 236 of the Taxation of Chargeable Gains Act 1992 were originally introduced in 1990 and provide for a roll over relief for capital gains on shares transferred to a qualifying employee share ownership trust which satisfies the conditions in Schedule 5 to the Finance Act 1989.

These provisions introduce a new relief for transfers of shares by individuals to a new employee share ownership plan introduced by Clause 47 and Schedule 8 of the Finance Bill. The relief has been introduced to assist unlisted companies that may be owned by individual shareholders including family members or family trusts to allow them a tax efficient capital gains roll-over relief to transfer ownership to the workforce. The relief has been simplified to facilitate transfers to the new employee share ownership plan by individuals or trusts that hold shares.

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