Readers’ forum: Employee ownership trusts

My client company is 100% owned by an employee ownership trust (EOT) for several years. I also act for the trustees.

The trustees are considering selling the company. I am comfortable with the overall capital gains tax implications when the trustees sell but there is one quirk here on which I would appreciate readers’ views.

One of the prospective purchasers is itself another EOT. If the trustees were to sell the entirety of their shares to another EOT how would this be treated for tax purposes?

A plain reading of TCGA 1992 s 236P seems to suggest the trustees are treated as disposing of and immediately reacquiring the shares pre-sale. If so capital gains tax would arise in exactly the same way as if they sold to a limited company.

This does feel counterintuitive because the intent of the legislation is presumably to encourage the...