EXPLANATORY NOTE

1. This clause allows the trustees of a qualifying employee share ownership trust to transfer shares to the trustees of an employee share ownership plan introduced by Clause 47 and Schedule 8 of the Finance Bill without triggering an income tax charge. The shares must have been held by the qualifying share ownership trust on 21 March 2000 (Budget day), or bought using funds held by the trustees on that date.(*Rev3)

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DETAILS OF THE CLAUSE

 

2. Subsection (1) explains that section 69 Finance Act 1989 is amended as provided for in the clause.

 

3. Subsection (2) adds a new "chargeable event" where there is a qualifying transfer as described in subsection (3) below and any consideration received is not used for a qualifying purpose within the specified period.

 

4. Subsection (3) adds a new qualifying transfer being one where shares are transferred at not more than an open market value to the trustees of employee share plan approved under Schedule 8 Finance Act 2000. Market value is defined in the same schedule. The shares, or the funds used to buy them, must have been held by the qualifying employee share ownership trust at the beginning of 21 March 2000 (Budget day). Where qualifying employee share ownership trust trustees transfer any shares after Budget day, they are treated as disposing of shares held on Budget day before any other shares. Where the trustees make any payment after Budget day, they are treated as expending any cash held on Budget day before any other cash they hold.

 

5. Subsection (4) inserts the transfer of shares to a new employee share ownership plan in the list of "qualifying purposes" of the qualifying employee share ownership trust.

 

6. Subsection (5) provides that the specified period in which any consideration for the transfer of shares to a new employee share ownership plan must be used for a qualifying purpose is within 9 months of the end of the period of account in which the qualifying transfer took place. The period of account is that of the company that established the trust.

 

7. Subsection (6) provides that to the extent that the consideration for the transfer is not used for a qualifying purpose under these new rules it is to be regarded as a "chargeable amount" under the qualifying employee share ownership trust legislation and taxable as such on the trustees.

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One of the ways in which trustees of the new all-employee share ownership plans approved under Schedule 8 of this Bill will acquire shares is from a qualifying employee share ownership trust. Section 69 of the Finance Act 1989 currently allows shares to be passed out under a restricted number of methods to beneficiaries of the trust. An additional qualifying transfer under the qualifying employee share ownership trust rules has been added, namely the transfer of shares to a new employee share ownership plan.

This will enable shares held in the qualifying employee share ownership trust on Budget day to be used for the new employee share ownership plan. However, if consideration is received for the transfer, it must be used for the purposes of the qualifying employee share ownership trust within 9 months of the period of account in which the transfer takes place. Failure to do so will give rise to a tax charge on the trustees.

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