Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
, see all updates

Employee benefit trusts: introduction

The term ‘employee benefit trust’ (EBT) is used to describe a number of different sorts of trust, although they are generally discretionary trusts. In general an employer sets up an EBT as a vehicle used in a scheme to reward, and motivate employees. The benefits may be pensions, sick pay, a share of profits, shares or almost anything the employer chooses. These trusts get relief from Inheritance Tax if they meet the conditions at IHTA84/S86 (IHTM42911).

With effect from 6 April 2014, a type of EBT known as an ‘Employee Ownership Trust’ (EOT) (IHTM42995) provides a vehicle to acquire the shares in the employing company.  The commentary in this Chapter does not apply equally to EBTs and EOTs in all respects.

Transfers into an EBT that meet the conditions at IHTA84/S86 will not be a transfer of value or may be exempt from Inheritance Tax where there is a transfer

  • of shares or securities in a company by an individual IHTA84/S28 (IHTM42950)
  • of shares or securities in a company from a discretionary trust IHTA84/S75 (IHTM42948), or
  • by a close company IHTA84/S12 (IHTM42955) and IHTA/S13 (IHTM42960)

provided the conditions in these sections are satisfied, or the transfer satisfies the conditions in IHTA84/S10 (IHTM42957).

Relief from Inheritance Tax on transfers into an EBT may be available where the value transferred is attributed to relevant business property (IHTM25001).

Once the fund for the trust has been created it is largely outside the Inheritance Tax provisions governing relevant property trusts, IHTA84/S58(1)(b); although this is not generally the case where sub-trusts are involved (IHTM42970).

The settled property is treated as comprised in one settlement for Inheritance Tax purposes IHTA84/S86(4)(a) (IHTM42945).

An interest in possession of less than five per cent of the settled property is disregarded for Inheritance Tax purposes (IHTM42946).

All Inheritance Tax aspects of employee benefit trusts are handled by the EBT Compliance team in Edinburgh. Their address is:

Trusts & Estates
Employee Benefit Trust Team
Meldrum House
15 Drumsheugh Gardens