Taxation of Chargeable Gains Act 1992 section 236D

Shares not exempt if shareholder or connected person has material interest in company

Section 236D prevents the capital gains tax exemption on employee shareholder shares from applying where the individual (or persons connected with them) holds or recently held a material interest in the employing company or its parent company.

• The exemption for gains on employee shareholder shares is denied where the individual, or persons connected with them, hold a material interest in the employer company or any parent company of the employer
• A material interest exists where at least 25% of the voting rights are exercisable by the individual, connected persons, or both together — and for close companies, where at least 25% of the net assets would be distributable to them
• The restriction also applies if the individual or connected persons have an entitlement to acquire rights that would give them a material interest, or if arrangements are in place that would enable them to acquire such an interest
• The material interest test looks not only at the time of acquisition but also at any point in the 12 months before the employee shareholder shares were acquired

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