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(b) only apply the settled property for the benefit of persons who
have been eligible employees for a continuous period of 12
months or such shorter period as the trustees may determine,

(c) comply with a written request from a person that the trustees
5do not apply any of the settled property for the benefit of that
person, or

(d) have complied with the terms of the trusts of the settlement
which prevent the settled property being applied for the
benefit of some or all of the persons who are eligible
10employees by reason only that they are office-holders.

(5) The behaviour requirement is not infringed by reason only that, in
addition to applying any of the settled property for the benefit of all
the eligible employees on the same terms, the trustees also apply any
of it for charitable purposes.

(6) 15Subject to subsections (4) and (5), the behaviour requirement is
infringed by the trustees if they apply the settled property by
reference to factors other than those mentioned in subsection (7).

(7) The behaviour requirement is not infringed by the trustees applying
the settled property for the benefit of all the eligible employees by
20reference to—

(a) an eligible employee’s remuneration,

(b) an eligible employee’s length of service, or

(c) hours worked by an eligible employee;

but this is subject to subsections (8) and (9).

(8) 25The behaviour requirement is infringed if any of the settled property
is applied by the trustees on terms such that some (but not all)
eligible employees receive no benefits (other than as mentioned in
subsection (4)(b), (c) and (d)).

(9) If the trustees apply any of the settled property by reference to more
30than one of the factors mentioned in subsection (7), the behaviour
requirement is infringed unless—

(a) each factor gives rise to a separate entitlement related to the
level of remuneration, length of service or (as the case may
be) hours worked, and

(b) 35the total entitlement is the sum of those separate
entitlements.

236M Controlling interest requirement

(1) A settlement meets the controlling interest requirement if—

(a) the trustees—

(i) 40hold more than 50% of the ordinary share capital of C,
and

(ii) have powers of voting on all questions affecting C as
a whole which, if exercised, would yield a majority of
the votes capable of being exercised on them,

(b) 45the trustees are entitled to more than 50% of the profits
available for distribution to the equity holders of C,

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(c) the trustees would be entitled, on a winding up of C, to more
than 50% of the assets of C available for distribution to equity
holders, and

(d) there are no provisions in any agreement or instrument
5affecting C’s constitution or management or its shares or
securities whereby the condition in paragraph (a), (b) or (c)
can cease to be satisfied without the consent of the trustees.

(2) See section 236R for further provision relating to the controlling
interest requirement.

236N 10Limited participation requirement

(1) The limited participation requirement is met if there was no time in
the period of 12 months ending immediately after the disposal
mentioned in section 236H(1) when—

(a) P was a participator in C, and

(b) 15the participator fraction exceeded 2/5.

(2) But a time which falls in a period during which the participator
fraction exceeded 2/5 is to be disregarded for the purposes of
subsection (1)(b) if—

(a) that period lasts no more than 6 months, and

(b) 20the fraction exceeded 2/5 during that period by reason of
events outside the reasonable control of the trustees.

(3) “The participator fraction” means—


where—

  • 25NP is the sum of—

    • (a) the number of persons who at the time in question
      are both—

      (i)

      participators in C, and

      (ii)

      employees of, or office-holders in, C, and

    • 30(b) the number of other persons who at that time are
      both—

      (i)

      employees of, or office-holders in, C or, if C is
      the principal company of a trading group, any
      member of the group, and

      (ii)

      35connected with persons within paragraph (a);

(4) The participators in C who are referred to in subsections (1) and (3)
40do not include any participator who—

(a) is not beneficially entitled to, or to rights entitling the
participator to acquire, 5% or more of, or of any class of the
shares comprised in, C’s share capital, and

(b) on a winding-up of C would not be entitled to 5% or more of
45its assets.

(5) In this section—

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(a) “participator” has the meaning given by section 454 of CTA
2010, and

(b) references to a participator in a company are, in the case of a
company which is not a close company (within the meaning
5of Chapter 2 of Part 10 of that Act), to be construed as
references to a person who would be a participator in the
company if it were a close company.

236O Events which trigger deemed disposal and reacquisition by trustees

(1) Where the trustees of a settlement acquire any ordinary share capital
10in a tax year in circumstances where section 236H applies, subsection
(3) applies on the first occasion a disqualifying event occurs in
relation to the acquisition.

(2) A “disqualifying event” occurs in relation to the acquisition if and
when—

(a) 15at any time after that tax year—

(i) C ceases to meet the trading requirement, or

(ii) the settlement ceases to meet the controlling interest
requirement, or

(b) at any time after the acquisition—

(i) 20the settlement ceases to meet the all-employee benefit
requirement,

(ii) the participator fraction exceeds 2/5, or

(iii) the trustees act in a way which the trusts, as required
by the all-employee benefit requirement, do not
25permit.

(3) The trustees are treated as having, immediately after the
disqualifying event—

(a) disposed of any ordinary share capital of C held by the
trustees which comprises shares acquired in circumstances
30where section 236H applied (and not subsequently disposed
of and reacquired), and

(b) immediately reacquired that ordinary share capital,

at its market value at that time.

(4) For the purposes of subsection (2)(b)(i)—

(a) 35unless the settlement met the all-employee benefit
requirement at the time of the acquisition by virtue of section
236L, that section does not apply for the purposes of
determining whether the settlement continues to meet that
requirement after the acquisition, and

(b) 40if, at the time of the acquisition, the settlement met that
requirement by virtue of section 236L and later continues to
meet it otherwise than by virtue of that section, it may not
again meet the requirement by virtue of that section.

(5) Where section 236L applies for the purposes of deciding whether the
45settlement has ceased to meet the all-employee benefit requirement
at any time (see subsection (2)(b)(i)), the reference in section
236L(1)(c) to the day of the disposal mentioned in section 236H(1) is
to be read as a reference to that time.

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(6) Section 236N(2) applies for the purposes of subsection (2)(b)(ii) as it
applies in relation to section 236N(1)(b).

236P Relief for deemed disposals under section 71

(1) This section applies where—

(a) 5a deemed disposal arises under section 71(1) by reason of the
trustees of a settlement (“the acquiring settlement”)
becoming absolutely entitled to settled property as against
the trustee of that settled property (“the transferring
trustee”),

(b) 10that settled property consists of ordinary share capital of a
company,

(c) the relief requirements in section 236H(4)(a) to (d) are met,
and

(d) the transferring trustee makes a claim under this section.

(2)
15Section 17(1) (disposals and acquisitions treated as made at market
value) does not apply to the disposal.

(3) The deemed disposal and acquisition by the transferring trustee
under section 71(1) are to be treated for the purposes of this Act as
being made for such consideration as to secure that neither a gain nor
20a loss accrues on the disposal.

(4) For the purposes of section 236O the trustees of the acquiring
settlement are treated as acquiring the ordinary share capital from
the transferring trustee, at the time of the deemed disposal, in
circumstances where section 236H applies.

(5) 25In applying sections 236H(4), 236I to 236O and 236R for the purposes
of this section—

(a) references in those provisions to the settlement are to be read
as references to the acquiring settlement, and

(b) references in those provisions to C are to be read as references
30to the company mentioned in subsection (1)(b).

(6) A claim under this section must include—

(a) information to identify the acquiring settlement,

(b) the name of the company mentioned in subsection (1)(b) and
the address of its registered office, and

(c) 35the date of the deemed disposal and the number of shares
deemed to have been disposed of.

236Q Identification of shares where section 236H or 236P applies

(1) This section applies where the trustees of a settlement hold—

(a) shares which were—

(i) 40acquired in circumstances where section 236H
applied, or

(ii) the subject of a deemed acquisition under section
71(1) in circumstances where section 236P applied,

and not subsequently disposed of and reacquired (“EOT
45exempt shares”), and

(b) other shares which, but for section 104(4A), would be shares
of the same class as those shares.

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(2) If the trustees dispose of some, but not all, of the shares so held, they
may determine what proportion of the shares disposed of are EOT
exempt shares (up to the number of such shares held).

(3) For the purposes of this section shares in a company are not to be
5treated 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
dealt with on a recognised stock exchange.

(4) Nothing in subsection (2) applies in relation to a disposal by virtue
of section 236O(3).

236R 10Further provision about significant and controlling interests

(1) This section applies for the purposes of—

(a) section 236L(2) (trustees hold a significant interest in C), and

(b) section 236M (controlling interest requirement).

(2) Chapter 6 of Part 5 of CTA 2010 (group relief: equity holders and
15profits or assets available for distribution) applies as it applies for the
purposes of the provisions mentioned in section 157(1) of that Act.

(3) The trustees are to be treated, for the purposes of section 236L(2)(b)
or 236M(1)(b), as entitled to dividends on shares even if the trustees
are required, or permitted, by the trusts of the settlement to waive
20their entitlement to those dividends.

(4) In determining whether section 236L(2)(d) or 236M(1)(d) applies,
ignore any provision of—

(a) a mortgage or charge (or, in Scotland, a charge or security)
granted by the trustees to a third party to secure any debt, or

(b) 25an agreement in respect of a loan made to the trustees by a
third party,

which confers any entitlement on the third party in the event of a
default by the trustees in performing their obligations in relation to
that debt or loan.

(5) 30In this section—

236S 45Interpretation of sections 236H to 236S

(1) In sections 236H to 236R and this section—

(2) 5In those sections—

(a) references to a group, to membership of a group or to the
principal company of a group, are to be construed in
accordance with section 170, and

(b) references to a group are to be construed with any necessary
10modifications where applied to a company incorporated
under the law of a country or territory outside the United
Kingdom.

(3) In determining whether a person is connected with another for the
purposes of those sections, section 286 applies as if subsection (8) of
15that section also mentioned uncle, aunt, nephew and niece.

Commencement and transitional provision

2 The amendment made by paragraph 1 has effect in relation to disposals
made on or after 6 April 2014.

3 (1) For the purposes of determining if the requirement of section 236L(1)(c) of
20TCGA 1992 (requirement as to conduct of trustees for 12 months) is met,
anything done by the trustees before 10 December 2013 is to be disregarded.

(2) But sub-paragraph (1) does not apply in relation to section 236L of TCGA
1992 as applied by section 312E(3) of ITEPA 2003 (rules determining
whether payment is a qualifying bonus payment for the purposes of Chapter
2510A of Part 4 of ITEPA 2003).

Part 2 Employment income exemption

4 In Part 4 of ITEPA 2003 (employment income: exemptions), after Chapter 10
insert—

CHAPTER 10A 30Exemptions: bonus payments by certain employers

312A Limited exemption for qualifying bonus payments

(1) This section applies in relation to qualifying bonus payments made,
in a tax year (“the tax year”), by an employer which is a company to
an employee or former employee of the employer.

(2) 35No liability to income tax arises in respect of the qualifying bonus
payments if, or to the extent that, the total chargeable amount in
respect of those payments does not exceed £3,600 (“the exempt
amount”).

(3) If qualifying bonus payments are made to the same person by two or
40more employers in the tax year, subsection (2) applies separately in

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relation to the total payments made by each employer, unless
subsection (4) applies.

(4) If two or more employers are members of the same group at the time
each of them first makes a qualifying bonus payment to the
5employee or former employee in the tax year, subsection (2) applies
as if the reference to the qualifying bonus payments were to all the
qualifying bonus payments made by those employers to the
employee or former employee in that tax year.

(5) If, in a tax year—

(a) 10an employer makes a payment when it is a member of a
group, and

(b) later in that tax year the employer ceases to be a member of
that group,

the employer is treated for the purposes of this section as remaining
15a member of that group for the remainder of the tax year (without
prejudice to it also being a member of any other group).

(6) In applying subsection (2)—

(a) the exempt amount is set against payments in the order in
which they are made, and

(b) 20if two or more payments are made on the same day, which
together take the total payments made in the tax year over the
exempt amount, subsection (7) applies to determine the
amount of each of those payments which is exempt.

(7) In a case within subsection (6)(b), the amount of a payment which is
25exempt is given by the formula—


where—

  • P is the amount of the payment,

  • SP is the sum of that payment and the other payments made
    30on the same day, and

  • REA is so much of the exempt amount as remains after taking
    account of any qualifying bonus payments previously made
    in the tax year.

(8) Where subsection (2) applies separately to different payments by
35virtue of subsection (3), subsections (6) and (7) also apply to those
payments separately.

(9) The Treasury may by order increase or reduce the sum of money
specified in subsection (2).

(10) A statutory instrument containing an order under this section which
40reduces the sum of money specified may not be made unless a draft
of it has been laid before and approved by a resolution of the House
of Commons.

(11) In this section “chargeable amount”, in respect of a qualifying bonus
payment, means the amount of employment income which would be
45charged to tax in respect of that qualifying bonus payment, apart
from this section.

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312B “Qualifying bonus payments”

(1) A payment made by an employer (“E”) to an employee or former
employee is a qualifying bonus payment if—

(a) it does not consist of regular salary or wages,

(b) 5it is awarded under a scheme which meets the participation
requirement and the equality requirement (see section 312C),

(c) E meets the trading requirement (see section 312D)
throughout the qualifying period,

(d) E meets the indirect employee-ownership requirement (see
10section 312E) throughout the qualifying period,

(e) E meets the office-holder requirement (see section 312F) at
the time the payment is made and on at least the requisite
number of days in the qualifying period (whether or not
those days are consecutive),

(f) 15E is not a service company (see section 312G),

(g) the payment is not excluded (see section 312H), and

(h) where it is a payment to a former employee, it is made in the
period of 12 months beginning with the day the employment
ceased.

(2) 20In this section “the qualifying period”, in relation to a payment,
means the period of 12 months ending with the day on which the
payment is made.

(3) But in a case where E meets the indirect employee-ownership
requirement on the day on which the payment is made—

(a) 25if the controlling interest requirement was first met during
that 12 month period, the qualifying period does not include
any time before it was met, and

(b) if the all-employee benefit requirement was first met during
that 12 month period, the qualifying period does not include
30any time before that requirement was met.

(4) In this section “the requisite number of days” means—

(a) if the qualifying period is 12 months, the number of days in
that period reduced by 90, and

(b) if the qualifying period is a shorter period by virtue of
35subsection (3), the number of days in that period reduced by
the corresponding fraction of 90 days.

312C Section 312B: the participation and equality requirements

(1) For the purposes of section 312B—

(a) the participation requirement is that all persons in relevant
40employment when the award is determined must be eligible
to participate in that and any other award under the scheme,
and

(b) the equality requirement is that every employee who
participates in an award under the scheme must do so on the
45same terms.

(2) A person is in “relevant employment” if—

(a) where E is a member of a group, the person is employed by
any company which is a member of the group, and

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(b) in any other case, the person is employed by E.

(3) The participation requirement is not infringed by reason of a person
in relevant employment being excluded from participating in an
award because, at the time the award is determined, the person has
5less than the minimum period of continuous service in relevant
employment required by E.

But the minimum period required by E for this purpose must not
exceed 12 months.

But the minimum period required by E for this purpose must not
10exceed 12 months.

(4) The participation requirement is not infringed—

(a) by reason of a person being excluded from participating in an
award where—

(i) disciplinary proceedings have been taken against the
15person by E which have resulted in a finding of gross
misconduct against the person, and

(ii) that finding was made in the period of 12 months
immediately before the time the award is determined,

(b) by reason of a person’s eligibility to participate in an award
20being conditional, in a case where the person is at the time of
the award subject to disciplinary proceedings taken by E,
upon those proceedings being concluded and no finding of
gross misconduct being made against that person, or

(c) by a person being treated as never having been eligible to
25participate in an award where, after the award was made but
before the payment is made—

(i) a finding of gross misconduct is made against that
person in disciplinary proceedings taken by E after
the award was made, or

(ii) 30that person is summarily dismissed from the
employment.

(5) The equality requirement is infringed if the amount of an award to
an employee under the scheme is determined by reference to factors
other than those mentioned in subsection (6).

(6) 35The equality requirement is not infringed by reason of the amount of
an award under the scheme to employees participating in the award
being determined by reference to—

(a) an employee’s remuneration,

(b) an employee’s length of service, or

(c) 40hours worked by an employee;

but this is subject to subsections (7) and (8).

(7) The equality requirement is infringed if an award is made on terms
such that some (but not all) of the employees participating in the
award receive nothing.

(8) 45If the amount of an award is determined by reference to more than
one of the factors mentioned in subsection (6), the equality
requirement is infringed unless—

(a) each factor gives rise to a separate entitlement related to the
level of remuneration, length of service or (as the case may
50be) hours worked, and

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(b) the total entitlement is the sum of those separate
entitlements.

(9) Subject to subsection (6), the equality requirement is infringed if any
feature of the scheme has, or is likely to have, the effect of conferring
5benefits wholly or mainly on those participating in the award who
are—

(a) directors or former directors, or

(b) employees receiving the higher or highest levels of
remuneration, or

(c) 10employees who—

(i) are employed in a particular part of the business
carried on by E or, if E is a member of a group, the
group, or

(ii) carry on particular kinds of activities.

(10) 15In subsections (1)(b), (5), (6), (7) and (9) references to an employee
include a former employee, so, when applying those subsections in
relation to a former employee, any reference to remuneration, length
of service, hours worked, being employed in a particular part of a
business or carrying on particular activities is to be read as relating
20to that former employment.

312D Section 312B: the trading requirement

(1) For the purposes of section 312B, a company meets the trading
requirement if—

(a) it is a trading company which is not a member of a group, or

(b) 25it is a member of a trading group.

(2)
“Trading company” means a company carrying on trading activities
whose activities do not include to a substantial extent activities other
than trading activities.

(3) “Trading group” means a group—

(a) 30one or more of whose members carry on trading group
activities, and

(b) the activities of whose members, taken together, do not
include to a substantial extent activities other than trading
group activities.

(4) 35In this section—

(5) For the purposes of determining whether a company is a trading
company or a member of a trading group—

(a) the activities of the members of a group are to be treated as
45one business (with the result that activities are disregarded to
the extent that they are intra-group activities), and

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Contents page 465-469 470-479 480-489 490-499 500-508 510-519 520-529 530-539 540-549 550-559 560-569 570-579 580-581 Last page