Closed consultation

Taxation of Employee Ownership Trusts and Employee Benefit Trusts

Published 18 July 2023

Summary

Subject of this consultation

This consultation seeks views on proposals for targeted reform to the Employee Ownership Trust and Employee Benefit Trust tax regimes to ensure that the regimes remain focused effectively on the policy objectives of encouraging employee engagement.

Scope of this consultation

HM Revenue and Customs is consulting on:

• proposals to ensure that the tax reliefs associated with Employee Ownership Trusts meet the policy objectives underpinning those reliefs
• proposals to reform the Inheritance Tax treatment for Employee Benefit Trusts

Who should read this

Individuals, trustees, tax practitioners; those involved in corporate restructures including business owners and advisors; non-Governmental organisations with an interest in business or tax.

Duration

The consultation will run for 10 weeks from 18 July 2023 to 25 September 2023.

Lead officials

The lead officials are James Shuttleworth and Fahmida Khanam of HM Revenue and Customs (HMRC).

How to respond or enquire about this consultation

Written responses can be made by post to:

Assets and Residence Team
HM Revenue and Customs
100 Parliament Street
London
SW1A 2BQ

By email to: asres.consult@hmrc.gov.uk.

Additional ways to be involved

HM Revenue and Customs welcomes meetings with interested parties to discuss these proposals.

After the consultation

The government will analyse the consultation responses and publish a summary of responses later this year.

Previous engagement

A consultation was held in 2013 prior to the introduction of the Employee Ownership Trust tax reliefs. This is the first consultation to examine the operation of these reliefs since introduction.

1. Executive summary

This consultation is being published in line with the government’s commitment to consult on tax policy design as set out in the Tax Consultation Framework.

The government is consulting on proposals to reform the tax treatment of two types of employee trusts: Employee Benefit Trusts and Employee Ownership Trusts.

An employee trust is a trust which is set up for the benefit of the employees or office holders of a company or group of companies. Such trusts are often referred to as Employee Benefit Trusts (EBTs) for tax purposes. EBTs may be set up for a range of purposes, for example to reward and motivate key employees through share ownership or to provide employees with benefits such as health cover.

An Employee Ownership Trust (EOT) is a specific type of EBT whereby the trustees own the company, and exercise control of the company for the benefit of all the employees. EOTs are given tax-favoured treatment through tax reliefs which were introduced in 2014.

The government would like to use this consultation to gather views on proposals to reform the tax treatment of EBTs and EOTs, to ensure that the regimes remain focused on the targeted objectives of rewarding employees and encouraging employee engagement. The key principles underpinning these reforms are to ensure that the favourable tax treatment remains available to those who use EBTs and EOTs for the intended policy purposes, whilst preventing tax advantages being obtained through use of these trusts outside of these intended purposes.

This consultation is split into two parts. Chapters 2 to 6 relate to EOTs. Chapter 7 relates to EBTs.

Chapter 2 provides an introduction to EOTs. Chapter 3 looks at the policy principles underpinning the EOT tax regime and seeks views on how the current regime helps to meet these policy objectives.

Chapter 4 looks at EOT trustees and seeks views on targeted reforms relating to trustee appointments. Chapters 5 and 6 seek views on the treatment of payments made from the trustees for the acquisition of shares, and on the EOT income tax relief.

Chapter 7 seeks views on proposals for targeted changes to the Inheritance Tax treatment of EBTs.

Chapter 8 summarises the impacts of the changes proposed in this consultation. Chapter 9 summarises the consultation questions and Chapter 10 sets out the process for responding.

2. Employee Ownership Trusts: Introduction

Employee ownership gives employees a stake in the business in which they work, making the company’s success their success. The government recognises the benefits that employee ownership brings and is committed to supporting employee-owned companies across the wider economy and encouraging companies to transition to employee ownership. This commitment to employee ownership supports the government’s wider agenda to grow the economy as set out in the Growth Plan 2022.

There are two broad forms of employee ownership:

• ‘direct ownership’ where the employees themselves are shareholders of the company
• ‘indirect ownership’, where the shares are held collectively by a third party on behalf of the employees

The independent Nuttall Review of Employee Ownership in 2012 demonstrated the benefits that employee ownership brings: for the employees, for the company, and for wider society. The review found that employee-owned companies perform better, are more resilient and open to change, and have more committed and engaged employees.

Following the Nuttall Review, the government introduced a package of measures to raise awareness of employee ownership and to support new and existing employee-owned businesses.

As part of this package, the government introduced tax reliefs with Finance Act 2014 to incentivise company owners to transition their companies to indirect employee ownership, with control of the company held by the trustees of a qualifying trust, referred to in this document as an EOT.

An EOT is a corporate ownership structure whereby a controlling shareholding of the company is held by trustees of a trust specifically set up for that purpose. For trusts that qualify for tax treatment as an EOT, the trustees are bound by the terms of the trust to apply their control of the company for the benefit of all the employees of the company.

For a company operating under an EOT structure, the company is therefore owned and controlled not by individual shareholders, but by the trustees of the EOT, who are required to exercise their control of the company for the benefit of the employees.

Individuals who dispose of shares in a trading company or the parent company of a trading group to the trustees of an EOT benefit from 100% Capital Gains Tax relief on the disposal. To qualify for this relief the trustees must hold a controlling interest in the company as a result of that disposal, and meet other conditions as set out at section 236H of the Taxation of Chargeable Gains Act 1992. The trustees are then bound by the terms of the trust to apply the trust property for the benefit of all the eligible employees of the company or group of companies.

There is no Inheritance Tax charge on the transfer of shares to an EOT; and the EOT itself is exempt from the Inheritance Tax relevant property regime.

Additionally, relief from Income Tax is available on qualifying bonuses of up to £3,600 per year per employee of the EOT-owned company. A qualifying bonus is a payment other than regular salary or wages that is paid to all employees on equal terms, with some variation allowed to reflect salary, length of service or hours of work.

3. Employee Ownership Trusts: Policy objectives and assessment of the current state of the reliefs

The policy objective of the tax reliefs outlined above in Chapter 2 is to encourage and incentivise the growth of employee ownership as a viable and mainstream business model. This is part of the government’s overarching support for employee ownership, giving employees a greater stake in the business in which they work and in turn driving productivity and growth.

Assessed against the objective of encouraging the creation of EOT, the reliefs have been successful. The EOT model has become the predominant model for employee ownership in the UK. The Employee Ownership Association estimates that over 1,000 companies have now transitioned to employee ownership, and the rate of uptake continues to increase.

As the tenth anniversary of the EOT tax regime approaches, the government believes it is the right time to review the reliefs to ensure that they continue to support employee ownership in the appropriate way. The government is keen to ensure that the tax reliefs remain focused on supporting new and existing employee owned businesses, and are not abused to give tax advantages to company owners without any genuine increase in employee engagement.

Chapters 4 to 6 set out proposals in specific areas where the government believes there is a case for reform. In addition, the government is interested in hearing about any other proposals for reform of the EOT tax regime to ensure that the reliefs remain focused on the objective of supporting and encouraging employee ownership.

4. Employee Ownership Trusts: Trustee issues

Conditions affecting trustee appointments

When a company owner transfers their company to employee ownership through an EOT, trustees are appointed to hold the company shares. Through this controlling shareholding, the trustees exercise control of the company on behalf of the employees.

There are at present no additional conditions regarding trustee appointments. When company owners set up the EOT they are free to appoint whomever they choose as trustees.

It is common for company owners to retain some degree of involvement in the company post-sale by appointing themselves as one of the trustees of the EOT. In some cases former owners may appoint themselves (or their associates) as the sole or majority trustees of the EOT, allowing them to in effect retain control of the company through their control of the trustee board.

The government recognises the benefits of having the expertise of former owners remain available to an EOT-owned company, for example where the former owner is the founder of the business and has experience which may prove invaluable to the continuing success of the company.

However, where the former owner retains control of the company through majority control of the EOT trustee board, it is questionable whether such an arrangement delivers meaningful change for the employees of the company. Whilst under the terms of the EOT this control must now be exercised for the benefit of the employees, in some cases this requirement may prove difficult to enforce.

The government proposes that former owners (alone or when taken with persons connected to them) should be prevented from retaining control of the EOT. This would be achieved by requiring that more than half of the trustees of the EOT be persons who are not the former owners or persons connected to them. Any breach of these conditions after disposal would be a disqualifying event and lead to an immediate Capital Gains Tax charge to the trustees (or to the former owner, if within the first year following disposal).

This restriction would not prevent former owners and connected persons from acting as trustees of the EOT, provided that they do not constitute a majority of the trustees. Special consideration is needed for EOTs that are controlled by a corporate trustee, to ensure that former owners or connected persons could not retain control of the EOT via control of that corporate body.

For the above purposes, the government proposes to define ‘connected persons’ using the existing definition found at section 286(2) of the Taxation of Chargeable Gains Act 1992. This would include spouses/civil partners and close relatives of the former owners.

In addition, the government would be interested in hearing views on whether conditions on EOT trustee appointments should be defined further, for example to require that one or more trustees be appointed or elected from defined groups such as employees of the company. Additional conditions such as these would help ensure that employee interests are represented adequately on the board but would reduce the flexibility the EOT model gives for tailoring the composition of the board to meet the circumstances of the company.

Question 1: Do you have any comments on the proposal to prohibit former owners and connected persons from retaining control of an EOT-owned company post-sale by appointing themselves in control of the EOT trustee board?

Question 2: Should the government go further and require that the EOT trustee board includes persons drawn from specific groups, such as employees or independent persons? If so, how should these groups be defined?

Trustee Tax Residency

A trust is UK resident for Income Tax and Capital Gains Tax purposes if all the trustees are all UK resident or, if there are both UK resident and non-UK resident trustees, the settlor was resident or domiciled in the UK when they made or added property to the trust. A trust with solely non-UK resident trustees is treated as non-UK resident for Income Tax and Capital Gains Tax purposes.

At present, there are no conditions regarding the residency status of EOT trustees. It is possible therefore to establish a non-resident EOT by appointing non-UK resident trustees, even if the former owner, company and employees are all located in the UK.

The trustees of a non-UK resident EOT would not be liable to pay Capital Gains Tax on any subsequent disposal of the target company shares, nor on a deemed disposal were a disqualifying event to occur. This means that it is possible to establish a non-resident EOT by appointing solely non-UK trustees, as part of an arrangement to reduce tax. At the most abusive, this could be part of a predetermined arrangement to dispose of the company to a third party without suffering the Capital Gains Tax that would otherwise be due.

There may, however, be legitimate reasons for an EOT to have non-UK resident trustees. For example, it may be prudent for an EOT-owned company with operations in multiple jurisdictions to have representatives from those jurisdictions on the trustee board. Likewise, if a particular non-UK resident individual has expertise relevant to the activities of the company, then it may be unfair to deny the trustee board access to that expertise solely due to the residency status of that individual.

The government proposes to introduce a requirement that the trustees of an EOT be UK resident as a single body of persons as defined at section 69 of the Taxation of Chargeable Gains Act 1992. This would require that either the trustees of the EOT all be UK resident; or that the trustees be a mix of UK resident and non-UK resident and that the former owner was UK resident or domiciled at the date the shares were disposed of to the EOT. A breach of this condition at any time after the disposal such that a UK-resident EOT becomes non-UK resident would result in a Capital Gains Tax ‘exit charge’ under existing provisions at section 80.

This change will mean that it will no longer be possible to establish a qualifying EOT that is non-UK resident for tax purposes, whilst still allowing scope within the EOT rules to appoint non-UK resident trustees (alongside UK resident trustees) if in particular cases this would be beneficial to the company.

Question 3: Do you have any comments on the proposal to require that the trustees of an EOT are UK resident as a single body of persons?

5. Employee Ownership Trusts: Funding issues

Confirmation of the treatment of contributions made from the company to the Employee Ownership Trust: Distributions

Newly established EOTs do not typically have any funds of their own to pay up front for shares from the departing owners. It is therefore common for all or part of the consideration due to the departing owners to remain outstanding at the point of sale. Any such balance owed is typically paid to the departing owners over a period of time, and is commonly funded through distributions of profits paid to the trustees.

Under section 1000 of the Corporation Tax Act 2010, such distributions to shareholders may be liable to Income Tax in the hands of shareholders. As a result, it has become routine practice for company owners contemplating EOT restructures to seek advance clearance from HMRC to confirm that HMRC will not seek to tax such contributions as distributions in the hands of the EOT trustees under section 1000 or related provisions at section 1020.

Currently HMRC routinely gives clearance that such payments made by an EOT-owned company to the trustees to pay the former owner(s) for their shares are not taxable. However, the lack of certainty and need for clearance is onerous, and some representative bodies have expressed concerns over the strength of the technical basis for accepting that such payments are not distributions. HMRC will stand by any clearance given but accepts the uncertainties inherent in the current approach.

The government agrees that a potential charge to tax under the distributions code should not act as a blocker to the establishment of an EOT, and wishes to remove this uncertainty and simplify the process for company owners seeking to transfer their company to employee ownership.

The government therefore proposes to confirm in legislation that contributions made by the company to the EOT trustees in order to repay the former owners for the acquisition cost of the company shares, will not be treated as distributions for the purposes of section 1000 or section 1020. This would include associated stamp duty and any interest payable at a reasonable commercial rate. This would only apply if the consideration paid by the trustees for the shares does not exceed the open market value for those shares.

Question 4: Do you have any comments on the proposal to confirm in legislation the distributions treatment for contributions made by a company to an EOT to repay the former owners for their shares?

Clearances in respect of the application of section 464A of the Corporation Tax Act 2010 to contributions made from the company to the Employee Ownership Trust

Where a close company loans or advances money to one of its participators and this amount remains outstanding, this gives rise to a corporation tax charge under section 455 of the Corporation Tax Act 2010. This applies as normal where such a company makes a loan or advance to an EOT which owns shares in the company (or where the EOT trustees otherwise become indebted to the company).

Where the company makes a payment to the EOT which is not a loan or advance, it is sometimes necessary to consider the potential for the targeted anti-avoidance rule in section 464A to apply that payment. It has become common practice for companies and their advisers to seek clearance from HMRC to confirm that HMRC will not seek to apply this legislation to the company contributions to the EOT. The clearances will be in respect of whether there are tax avoidance arrangements.

In general, HMRC does not provide clearances in respect of whether there are tax avoidance arrangements. Both section 464A and the EOT rules have been in place now for almost a decade, and HMRC therefore proposes to stop providing clearances in respect of the application of section 464A to company contributions to EOTs. Provided a tax avoidance purpose is not present, section 464A will not apply.

Question 5: Do you have any comments on the proposal that HMRC stops giving clearances on the application of section 464A of the Corporation Tax Act 2010 to the establishment of EOTs?

6. Employee Ownership Trusts: Income Tax Bonus issues

As part of the tax incentives designed to encourage the formation of EOTs, an employee-owned company can pay up to £3,600 annually as a tax-free bonus to its employees. There are strict rules governing the payment of the bonus, as set out at section 312B of the Income Tax (Earnings and Pensions) Act 2003:

• the participation requirement
• the equality requirement
• the office holder requirement

The participation requirement

• all employees, including those based overseas, and those in employment in any company within a group structure, must be eligible to participate in any qualifying bonus award at the point when the award is determined

The equality requirement

• all employees who participate in a qualifying bonus award must do so on the same terms. The only factors which may be used to determine the award are:

  • the employee’s remuneration
  • the employee’s length of service
  • hours worked by an employee

• the equality requirement is infringed if the scheme will confer benefits wholly or mainly on directors or former directors, or those receiving the highest levels of remuneration

The office holder requirement

• a company will be unable to make payments of qualifying bonuses if, within an individual company in the group, the number of directors or office holders and other employees connected with them when compared to the total number of employees exceeds a ratio of 2/5

The rules were designed to be restrictive to ensure that the tax-free bonuses cannot be weighted in favour of directors or the highest paid individuals in an EOT.

In some very specific circumstances the interaction of these rules can make it difficult to award the tax-free bonuses. For example, when a group has overseas companies with one employee who is a director, the office holder requirement may not be met which would mean no tax-free bonuses can be awarded to any employee of the group. Likewise, the requirements may be difficult to meet for companies that have non-executive directors, because non-executive directors (as employees) must receive a qualifying bonus in order to meet the participation requirement, but they are not typically entitled to bonuses.

The government is considering amending the qualifying bonus payment rules so that tax-free bonuses can be awarded to employees without directors necessarily also having to be included. These changes would make the tax-free bonus, a key incentive for the setting up of EOTs, easier to administer, and in turn make EOTs more attractive as a whole. Any changes would need to continue to ensure that the bonus payments cannot be weighted in favour of directors and the highest paid, or otherwise be exploited.

Question 6: Should the EOT bonus rules be eased so that tax-free bonuses can be awarded to employees without directors necessarily also having to be included, and would this undermine protections which ensure that bonus payments are not abused or weighted towards some employees?

Question 7: Do the EOT bonus rules create any other unintended consequences or challenges in administering the tax-free bonus payments?

Question 8: In addition to the reforms proposed at Chapters 4 to 6, do you have any views on ways the EOT tax regimes could be reformed to better support employee ownership?

7. Employee Benefit Trusts

An Employee Benefit Trust (EBT) is a trust which is set up by an employer to reward and motivate employees. The benefits provided may be pensions, sick pay, a share of profits, shares or almost anything the employer chooses.

If an EBT meets the conditions set out in section 86 of the Inheritance Tax Act 1984, the EBT will get relief from Inheritance Tax (IHT) relevant property trust charges of up to 6% at each ten year anniversary of the EBT being set up, and exit charges on capital distributions from the EBT. Additionally, transfers into an EBT that meet conditions set out at section 28 will be exempt from IHT where there is a transfer of shares or securities in a company by an individual, and there are similar provisions where the transfer is by a close company (section 13) and in relation to relevant property trusts (section 75).

The conditions are intended to ensure that EBTs set up to benefit only those people who are shareholders in the company (participators), or people connected with those participators do not qualify for this preferential treatment.

Participators (or anyone connected to them) may not benefit from capital of the EBT at any time, and the class of people who can benefit must include all or most employees.

There are concerns that some EBTs are being used in ways that are not in line with the policy objective which is to encourage the use of EBTs in a way that incentivises a wider class of employees. HMRC has seen arrangements where EBTs are set up to meet the conditions set out in the Inheritance Tax Act 1984 but little or no capital is given to the wider class of employees. These EBTs are set up so that participators or their family members can benefit from income earned by the EBT.

The government is consulting on reforming the exemptions to protect against this behaviour and to ensure the tax treatment of EBTs is in line with the original policy intent.

The government believes the EBT rules should be updated, providing certainty and reducing the need to rely on the General Anti-Abuse Rule (GAAR) for arrangements such as those covered by this opinion from the GAAR Advisory Panel.

The proposed changes

The government’s position, as supported by Court of Appeal decisions (Barker v Baxendale Walker Solicitors [2017] EWCA Civ 2056 and Bhaur v Equity First Trustees (Nevis) Limited [2023] EWCA Civ 534), is that individuals connected to a participator cannot benefit for the lifetime of the EBT. However, HMRC have seen cases where the trust deed allows individuals connected to a participator to benefit after the participator’s death. The government proposes to make it explicit that restrictions on persons connected to the participator benefitting from EBT must apply for the lifetime of the EBT.

Question 9: Do you have comments on the proposal to confirm the government’s position by making it explicit in legislation that the restrictions on connected persons benefiting from an EBT must apply for the lifetime of the trust?

At present, an individual can set up a company, immediately make a transfer of shares to an EBT and obtain the IHT exemption. The government proposes introducing a rule where the settlor needs to have held the shares for two-years prior to settlement into an EBT in order to gain this exemption.

Question 10: Do you have any comments on the proposal to only allow the IHT exemption where the shares have been held for two years prior to settlement into an EBT?

When considering whether participators and those connected to them are excluded from benefitting under an EBT, no account is currently taken of income payments made from the EBT. HMRC have seen instances where individuals connected to the participator, who are excluded from benefitting from the capital of the trust, are still able to benefit from the EBT through income payments. The government proposes introducing a provision that no more than 25% of employees who are able to benefit from income payments under an EBT can be connected to the participator in order for the EBT to benefit from favourable IHT treatment.

Question 11: Do you have any comments on the proposal that no more than 25% of employees who are able to receive income payments should be connected to the participator in order for the EBT to benefit from favourable tax treatment?

Question 12: In addition to the reforms proposed at Chapter 7, do you have any views on ways the tax treatment of EBTs could be enhanced?

8. Assessment of impacts

Summary of impacts

Year	2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028
Exchequer impact (£m)	+/-	+/-	+/-	+/-	+/-	+/-

Exchequer Impact Assessment

The Exchequer impact will be estimated following consultation, final scope and design of the policy and will be subject to scrutiny by the Office for Budget Responsibility.

Impacts	Comment
Economic impact	The proposals are not expected to have any significant economic impacts. Impacts will be identified following consultation and final design of the measures.
Impact on individuals, households and families	The Employee Ownership Trust (EOT) proposals are expected to have an impact on individuals who are shareholders or employees of companies that may transition to EOT-ownership in the future. The changes are expected to have a positive impact on these employees, by increasing employee engagement and participation. The Employee Benefit Trust (EBT) proposals may impact individuals and companies who wish to claim the exemption. It will tighten the rules and ensure the correct amount of tax is paid. This measure is expected overall to have no impact on individual’s experience of dealing with the government as the change doesn’t change any processes or tax administration obligations. There is not expected to be an impact on family formation, stability, or breakdown.
Equalities impacts	It is not expected that the changes proposed in the consultation will have impacts on those in groups sharing protected characteristics.
Impact on businesses and Civil Society Organisations	This EOT proposals are expected to have a small positive impact on companies that transition to EOT ownership, as the proposals are designed to increase employee engagement and therefore business productivity and growth. The EBT proposals will have a negligible impact on businesses who set up an EBT by restricting the qualifying conditions and reducing the circumstances where exemption is applicable. One-off costs could include familiarisation with these changes. There are not expected to be any continuing costs. These proposals are expected overall to have no impact on individual’s experience of dealing with the government as the change doesn’t change any processes or tax administration obligations. There is not expected to be any impact on civil society organisations.
Impact on Government or other public sector delivery organisations	The EOT proposals will have a small positive impact on HMRC by removing the need to process advance clearance applications. The EBT proposals are expected overall to have no impact on business and individual experience of dealing with the government as the proposed reforms do not change any processes or tax administration obligations.
Other impacts	No other impacts have been identified.

9. Summary of consultation questions

Question 1: Do you have any comments on the proposal to prohibit former owners and connected persons from retaining control of an EOT-owned company post-sale by appointing themselves in control of the EOT trustee board?

Question 2: Should the government go further and require that the EOT trustee board includes persons drawn from specific groups, such as employees or independent persons? If so, how should these groups be defined?

Question 3: Do you have any comments on the proposal to require that the trustees of an EOT are UK resident as a single body of persons?

Question 4: Do you have any comments on the proposal to confirm in legislation the distributions treatment for contributions made by a company to an EOT to repay the former owners for their shares?

Question 5: Do you have any comments on the proposal that HMRC stops giving clearances on the application of section 464A of the Corporation Tax Act 2010 to the establishment of EOTs?

Question 6: Should the EOT bonus rules be eased so that tax-free bonuses can be awarded to employees without directors necessarily also having to be included, and would this undermine protections which ensure that bonus payments are not abused or weighted towards some employees?

Question 7: Do the EOT bonus rules create any other unintended consequences or challenges in administering the tax-free bonus payments?

Question 8: In addition to the reforms proposed at Chapters 4 to 6, do you have any views on ways the Employee Ownership Trust tax regimes could be reformed to better support employee ownership?

Question 9: Do you have comments on the proposal to confirm the government’s position by making it explicit in legislation that the restrictions on connected persons benefiting from EBT must apply for the lifetime of the trust?

Question 10: Do you have any comments on the proposal to only allow the IHT exemption where the shares have been held for two years prior to settlement into an EBT?

Question 11: Do you have any comments on the proposal that no more than 25% of employees who are able to receive income payments should be connected to the participator in order for the EBT to benefit from favourable tax treatment?

Question 12: In addition to the reforms proposed at Chapter 7, do you have any views on ways the tax treatment of EBTs could be enhanced?

10. The consultation process

The consultation process

This consultation is being conducted in line with the Tax Consultation Framework. There are 5 stages to tax policy development:

Stage 1: Setting out objectives and identifying options.

Stage 2: Determining the best option and developing a framework for implementation including detailed policy design.

Stage 3: Drafting legislation to effect the proposed change.

Stage 4: Implementing and monitoring the change.

Stage 5: Reviewing and evaluating the change.

This consultation is taking place during stage 2 of the process. The purpose of the consultation is to seek views on the detailed policy design and a framework for implementation of specific proposals.

How to respond

A summary of the questions in this consultation is included at Chapter 9.

Responses should be sent by 25 September 2023, by email to asres.consult@hmrc.gov.uk or by post to:

Assets and Residence Team
HM Revenue and Customs
Area 3C/03
100 Parliament Street
London
SW1A 2BQ

Please do not send consultation responses to the Consultation Coordinator.

Paper copies of this document or copies in Welsh and alternative formats (large print, audio and Braille) may be obtained free of charge from the above address.

All responses will be acknowledged, but it will not be possible to give substantive replies to individual representations.

When responding please say if you are a business, individual or representative body. In the case of representative bodies please provide information on the number and nature of people you represent.

Confidentiality

HMRC is committed to protecting the privacy and security of your personal information. This privacy notice describes how we collect and use personal information about you in accordance with data protection law, including the UK GDPR and the Data Protection Act (DPA) 2018.

Information provided in response to this consultation, including personal information, may be published or disclosed in accordance with the access to information regimes. These are primarily the Freedom of Information Act 2000 (FOIA), the DPA 2018, UK GDPR and the Environmental Information Regulations 2004.

If you want the information that you provide to be treated as confidential, please be aware that, under the Freedom of Information Act 2000, there is a statutory Code of Practice with which public authorities must comply and which deals with, amongst other things, obligations of confidence. In view of this it would be helpful if you could explain to us why you regard the information you have provided as confidential. If we receive a request for disclosure of the information we will take full account of your explanation, but we cannot give an assurance that confidentiality can be maintained in all circumstances. An automatic confidentiality disclaimer generated by your IT system will not, of itself, be regarded as binding on HM Revenue and Customs.

Consultation Privacy Notice

This notice sets out how we will use your personal data, and your rights. It is made under Articles 13 and/or 14 of the UK GDPR.

Your data

We will process the following personal data:

Name

Purpose

The purposes for which we are processing your personal data is: Taxation of Employee Ownership Trusts and Employee Benefit Trusts.

Legal basis of processing

The legal basis for processing your personal data is that the processing is necessary for the exercise of a function of a government department.

Recipients

Your personal data will be shared by us with HM Treasury.

Retention

Your personal data will be kept by us for 6 years and will then be deleted.

Your rights

You have the right to request information about how your personal data are processed, and to request a copy of that personal data.

You have the right to request that any inaccuracies in your personal data are rectified without delay.

You have the right to request that any incomplete personal data are completed, including by means of a supplementary statement.

You have the right to request that your personal data are erased if there is no longer a justification for them to be processed.

You have the right in certain circumstances (for example, where accuracy is contested) to request that the processing of your personal data is restricted.

Complaints

If you consider that your personal data has been misused or mishandled, you may make a complaint to the Information Commissioner, who is an independent regulator. The Information Commissioner can be contacted at:

Information Commissioner's Office
Wycliffe House
Water Lane
Wilmslow
Cheshire
SK9 5AF

0303 123 1113 casework@ico.org.uk

Any complaint to the Information Commissioner is without prejudice to your right to seek redress through the courts.

Contact details

The data controller for your personal data is HMRC. The contact details for the data controller are:

HMRC
100 Parliament Street
Westminster
London
SW1A 2BQ

The contact details for HMRC’s Data Protection Officer are:

The Data Protection Officer
HMRC
14 Westfield Avenue
Stratford
London
E20 1HZ

advice.dpa@hmrc.gov.uk

Consultation principles

This call for evidence is being run in accordance with the government’s Consultation Principles.

The Consultation Principles are available on the Cabinet Office website.

If you have any comments or complaints about the consultation process, please contact the Consultation Coordinator.

Please do not send responses to the consultation to this link.

Annex A: Relevant (current) government legislation

The main provisions relevant to this consultation are as follows:

Inheritance Tax Act 1984:

• Part 2 (Exempt Transfers)
  • Section 13 (Disposition by close companies for benefit of employees)
  • Section 28 (Employee trusts)
  • Section 28A (Employee-ownership trusts)
  • Section 75 (Property becoming subject to employee trusts)
• Part 3 (Settled Property)
  • Section 86 (Trusts for benefit of employees)

Taxation of Chargeable Gains Act 1992:

• Part 7 (Other property, businesses, investments etc)
  • Sections 236H – 236U (Employee-ownership trusts)

Income Tax (Earnings and Pensions Act) 2003:

• Part 4 (Employment income: exceptions)
  • Sections 312A – 312I (Exemptions: bonus payments by certain employers)

Income Tax (Trading and Other Income) Act 2005:

• Part 4 (Savings and investment income)
  • Section 383 (Charge to tax on dividends and other distributions)

Corporation Tax Act 2010:

• Part 10 (Close companies)
  • Section 464A (Charge to tax: arrangements conferring benefit on participator)
• Part 23 (Company Distributions)
  • Section 1000 (Meaning of ‘distribution’)

UK legislation can be found at www.legislation.gov.uk.