TCGA 1992 s.239 – Disposals to trustees of employee trusts

(1)Where—

(a)^M48a close company disposes of an asset to trustees in circumstances such that the disposal is a disposition which by virtue of section 13 of the Inheritance Tax Act 1984 (employee trusts) is not a transfer of value for the purposes of inheritance tax, or

(b)an individual disposes of an asset to trustees in circumstances such that the disposal is an exempt transfer by virtue of section 28 of that Act (employee trusts: inheritance tax),

this Act shall have effect in relation to the disposal in accordance with subsections (2) and (3) below.

(2)Section 17(1) shall not apply to the disposal; and if the disposal is by way of gift or is for a consideration not exceeding the sums allowable as a deduction under section 38—

(a)the disposal, and the acquisition by the trustees, shall be treated for the purposes of this Act as being made for such consideration as to secure that neither a gain nor a loss accrues on the disposal, and

(b)where the trustees dispose of the asset, its acquisition by the company or individual shall be treated as its acquisition by the trustees.

Paragraph (b) above also applies where section 149(1) of the 1979 Act applied on the disposal of an asset to trustees who have not disposed of it before the coming into force of this section.

(3)Where the disposal is by a close company, section 125(1) shall apply to the disposal as if for the reference to market value there were substituted a reference to market value or the sums allowable as a deduction under section 38, whichever is the less.

(4)Subject to subsection (5) below, this Act shall also have effect in accordance with subsection (2) above in relation to any disposal made by a company other than a close company if—

(a)the disposal is made to trustees otherwise than under a bargain made at arm’s length, and

(b)^M49the property disposed of is to be held by them on trusts of the description specified in section 86(1) of the Inheritance Tax Act 1984 (that is to say, those in relation to which the said section 13 of that Act has effect) and the persons for whose benefit the trusts permit the property to be applied include all or most of either—

(i)the persons employed by or holding office with the company, or

(ii)the persons employed by or holding office with the company or any one or more subsidiaries of the company.

(5)Subsection (4) above does not apply if the trusts permit any of the property to be applied at any time (whether during any such period as is referred to in the said section 86(1) or later) for the benefit of—

(a) a person who is a participator in the company (“the donor company”), or

(b)any other person who is a participator in any other company that has made a disposal of property to be held on the same trusts as the property disposed of by the donor company, being a disposal in relation to which this Act has had effect in accordance with subsection (2) above, or

(c)any other person who has been a participator in the donor company or any such company as is mentioned in paragraph (b) above at any time after, or during the 10 years before, the disposal made by that company, or

(d)any person who is connected with a person within paragraph (a), (b) or (c) above.

(6)The participators in a company who are referred to in subsection (5) above do not include any participator who—

(a)is not beneficially entitled to, or to rights entitling him to acquire, 5 per cent. or more of, or of any class of the shares comprised in, its issued share capital, and

(b)on a winding-up of the company would not be entitled to 5 per cent. or more of its assets;

and in determining whether the trusts permit property to be applied as mentioned in that subsection, no account shall be taken—

(i)of any power to make a payment which is the income of any person for any of the purposes of income tax, or would be the income for any of those purposes of a person not resident in the United Kingdom if he were so resident, or

(ii)if the trusts are those of a profit sharing scheme approved under Schedule 9 to the Taxes Act of any power to appropriate shares in pursuance of the scheme.

(7) In subsection (4) above “subsidiary” has the meaning given by section [^F1828 1159 of and Schedule 6 to ^F1828] the Companies Act [^F1828 2006 ^F1828] and in subsections (5) and (6) above “participator” has the meaning given [^F1829 by section 454 of CTA 2010 ^F1829] , except that it does not include a loan creditor.

(8) In this section “close company” includes a company which, if resident in the United Kingdom, would be a close company as defined in section 288.

Definitions used in section 239 20

close company: “close company” shall be construed in accordance with Chapter 2 of Part 10 of CTA 2010 (see in particular section 439) (subject to section 138ZA (6) ) ;
Defined in s.288(1) · see it in the full Act; (3) Paragraph 46 (meaning of “close company”, “qualifying investor” and “direct or indirect participator”) applies for the purposes of this paragraph but, for the purposes of sub-paragraph (1)(f)(iii), paragraph 46 has effect as if sub-paragraph (3)(c) were omitted .
Defined in Sch.5AAA para.1(3) · see it in the full Act; (6) Paragraph 46 (meaning of “close company”, “qualifying investor” and “direct or indirect participator”) applies for the purposes of sub-paragraph (5).
Defined in Sch.5AAA para.13(6) · see it in the full Act; (7) Paragraph 46 (meaning of “close company”, “qualifying investor” and “direct or indirect participator”) applies for the purposes of sub-paragraph (6).
Defined in Sch.5AAA para.7(7) · see it in the full Act
assets: (a) the reference to “assets” were a reference to “property”, and
Defined in Sch.4ZA para.22(2) · see it in the full Act
asset: In this sub-paragraph “asset” includes part of an asset.
Defined in Sch.8B para.6(1) · see it in the full Act
trustee: (7A) In this section, sections 86A to 96 and Schedule 4C “trustee”, in relation to a settlement in relation to which there would be no trustees apart from this subsection, means any person in whom the settled property or its management is for the time being vested (and a person who is treated as a trustee of the settlement by virtue of this subsection shall be treated as a trustee of the settlement for the purposes of section 69).
Defined in s.97(7A) · see it in the full Act; (b) “trustee”, in relation to a settlement in relation to which there would be no trustees apart from this paragraph, means any person in whom the settled property or its management is for the time being vested.
Defined in s.286(3ZA) · see it in the full Act
tax: and for the purposes of this definition “tax” means capital gains tax, corporation tax or income tax.
Defined in s.16A(2) · see it in the full Act
the individual: 13C (1) The receipt of the replacement value by the original supplier shall be disregarded for the purposes of paragraph 13B above, as it applies in relation to the shares, to the extent to which that receipt has previously been set (under that paragraph) against any receipts of value which are, in consequence, disregarded for the purposes of paragraph 13 above as that paragraph applies in relation to those shares or any other shares subscribed for by the individual in question (“the individual”).
Defined in Sch.5B para.13C(1) · see it in the full Act
company: “company” includes any body corporate or unincorporated association but does not include a partnership, and shall be construed in accordance with section 99 ;
Defined in s.288(1) · see it in the full Act; (5) In this paragraph “company” and “group” shall be construed in accordance with section 170(2) to (9).
Defined in Sch.2 para.5(5) · see it in the full Act
the 1979 Act: “the 1979 Act” means the Capital Gains Tax Act 1979 ;
Defined in s.288(1) · see it in the full Act
market value: (5AA) In this Act “market value” in relation to shares of a given class in an open-ended investment company the prices of which are published regularly by the authorised corporate director of that company (whether or not those shares are also quoted in The Stock Exchange Daily Official List) shall mean an amount equal to the price so published on the relevant date, or if no price was published on that date, on the latest date before that date.
Defined in s.272(5AA) · see it in the full Act; (5) In this Act “market value” in relation to any rights of unit holders in any unit trust scheme the buying and selling prices of which are published regularly by the managers of the scheme shall mean an amount equal to the buying price (that is the lower price) so published on the relevant date, or if none were published on that date, on the latest date before.
Defined in s.272(5) · see it in the full Act; (1) In this Act “market value” in relation to any assets means the price which those assets might reasonably be expected to fetch on a sale in the open market.
Defined in s.272(1) · see it in the full Act; (4) In particular, for the purposes of paragraphs 5 and 7 of this Schedule “market value” has the meaning given by paragraph 92 of Schedule 2 to that Act (determination of market value); and Part 8 of this Act has effect subject to this paragraph.
Defined in Sch.7D para.1(4) · see it in the full Act
property: (6) Sub-paragraphs (4) and (5) above apply for the purposes of paragraph (b) of sub-paragraph (1) above as they apply for the purposes of paragraph (a), reading “income” for “property".
Defined in Sch.5 para.2(6) · see it in the full Act; (a) the reference to “assets” were a reference to “property”, and
Defined in Sch.4ZA para.22(2) · see it in the full Act
participator: (9) In this paragraph “participator” has the meaning given by section 454 of CTA 2010 .
Defined in Sch.5 para.8(9) · see it in the full Act; (10) In sub-paragraphs (8) and (9) “participator” has the meaning given by section 454 of CTA 2010 .
Defined in Sch.5 para.2(10) · see it in the full Act
connected: (4) Section 1122 of CTA 2010 (meaning of “connected” persons) applies for the purposes of sub-paragraph (1A)(a).
Defined in Sch.7AC para.19(4) · see it in the full Act
class: “class”, in relation to shares or securities, means a class of shares or securities of any one company;
Defined in s.288(1) · see it in the full Act
shares: “shares” includes stock;
Defined in s.288(1) · see it in the full Act; (5) In this paragraph, except in paragraphs (a) to (c) of sub-paragraph (6), “shares” includes an interest in shares.
Defined in Sch.7AC para.10(5) · see it in the full Act; (b) “shares” includes securities,
Defined in Sch.7 para.4(2) · see it in the full Act
the shares: (5) In sub-paragraphs (3) and (4) and in the following provisions of this Schedule references to “the shares” are to the shares referred to in sub-paragraph (1)(a).
Defined in Sch.7ZB para.1(5) · see it in the full Act; (a) references to “the shares” shall be construed in accordance with sub-paragraph (1) above, and
Defined in Sch.5B para.13(12) · see it in the full Act
income: (6) Sub-paragraphs (4) and (5) above apply for the purposes of paragraph (b) of sub-paragraph (1) above as they apply for the purposes of paragraph (a), reading “income” for “property".
Defined in Sch.5 para.2(6) · see it in the full Act
the residents: (b) if 2 or more of them are then resident ... in the United Kingdom (“the residents”) it shall be treated as being as many equal capital payments as there are residents and each of them shall be treated as receiving one of the payments.
Defined in s.96(4) · see it in the full Act
resident: “resident” means resident in accordance with the statutory residence test in Part 1 of Schedule 45 to the Finance Act 2013 ;
Defined in s.288(1) · see it in the full Act
the Taxes Act: “the Taxes Act” means the Income and Corporation Taxes Act 1988 ;
Defined in s.288(1) · see it in the full Act
CTA 2010: “CTA 2010” means the Corporation Tax Act 2010 ;
Defined in s.288(1) · see it in the full Act

Cases considering section 239 4

Barker v Baxendale Walker Solicitors (a firm)

[2016] EWHC 664 (Ch) · 23 March 2016

Applies holdover relief to the transfer of shares where the section 28 conditions are met. The provision formed part of the causal and statutory analysis of whether the EBT avoided an immediate capital gains charge. (see paras [40], [150], [182])

The Official Receiver v Watson & Anor

[2008] EWHC 64 (Ch) · 24 January 2008Limits

Considers the tax-planning condition that connected persons and shareholders could not benefit from the employee benefit trust if the intended no-loss/no-gain treatment was to apply. The court held that failure to satisfy the provision would make the scheme ineffective for tax purposes, not unlawful or fraudulent. (see paras [63]–[68]; [166]–[170])

Barker v Baxendale Walker Solicitors (a firm) & Anor

[2017] EWCA Civ 2056 · 8 December 2017

Capital Gains Tax hold-over relief was available where the conditions for Inheritance Tax exemption were met (see paras [22]; [75]–[77]). The provision made Capital Gains Tax hold-over relief follow automatically when the conditions for exemption under section 28 of the Inheritance Tax Act 1984 were satisfied (see para [75]). The provision formed part of the statutory basis on which Capital Gains Tax hold-over relief followed from satisfaction of the Inheritance Tax exemption conditions (see para [75]).

IAIN PAUL BARKER v CONFIÀNCE LTD[2018] EWHC 2965 (Ch) · 8 November 2018

What each judgment says about section 239 is in the case-law panel in the full Act.

Amendments and notes

5 notes from legislation.gov.uk

Amendments

F1827S. 239 heading substituted (with effect in accordance with art. 11(4) of the amending S.I.) by The Enactment of Extra-Statutory Concessions Order 2009 (S.I. 2009/730), arts. 1(1), 11(2)
F1828Words in s. 239(7) substituted (1.10.2009) by The Companies Act 2006 (Consequential Amendments) (Taxes and National Insurance) Order 2009 (S.I. 2009/1890), arts. 1(1), 4(1)(i)
F1829Words in s. 239(7) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 253 (with Sch. 2)

Marginal citations

M481984 c. 51.
M491984 c. 51.