HM Revenue & Customs has explained in an email to those who have engaged with the Government on the introduction of this legislation that:
"... these amendments are to provide protection against abuse without creating unfairnesses which might expose the UK to legal challenge.
They provide for relief from capital gains tax ["CGT"] to be withdrawn, and for further claims to relief to be barred, if certain events occur. They also amend the relief requirements which must be met for a claim to be made. Where relief is withdrawn and further claims barred, this will supplant the deeming of a gain or loss on the trustees. The amendments are intended to prevent abuse of the relief where an EOT exists only for a short time.
... we have defined 'disqualifying events' at section 236O TCGA in terms similar to the relief requirements at section 236H(4), and if a disqualifying event occurs then a gain or loss is treated as accruing to the trustees of the EOT. As a result of the new amendments:
- it becomes a condition for the CGT relief to be claimed that the relief requirements in section 236H(4) must not cease to be met at any time during the year in which the disposal occurs (a requirement may be met for only part of the year, but once it has begun to be met it may not cease).
- if a disqualifying event occurs during the tax year following that in which the disposal to the trustees occurs, any CGT relief given is withdrawn and no new claims may be made.
- section 236O will continue to apply when disqualifying events occur at other times.
We recognise that these rules are new to the scheme, and so they will not apply to disposals of shares to trustees which took place on or after 6 April 2014 but before 26 June 2014."
The amendments are available on the Parliament website at http://services.parliament.uk/bills/2014-15/finance/documents.html There is an accompanying explanatory note.
For additional information on these EOT reliefs see the article The employee ownership business model and Nuttall Review of Employee Ownership – quick guide to source materials