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HMRC internal manual

Inheritance Tax Manual

Employee benefit trusts: conditions for relief: 'all or most' test

To prevent the statutory provisions (and the relief they provide) applying to a trust for the benefit of only a small group of employees, who otherwise qualify under IHTA84/S86(1)(a) (for example, directors or those with long service) IHTA84/S86(3)(a) applies what we call the ‘all or most’ test.

Where the class of beneficiaries is defined by their employment by or office with a particular body, the trust will only qualify under IHTA84/S86 if the class comprises ‘all or most’ of the people employed by or holding office with the body concerned.

‘All or most’ means more than 50 per cent. So, as long as more than 50 per cent of the current employees are eligible to benefit (they do not need to actually benefit) the provisions will be satisfied.

It does not matter if the number of former employees is more than the number of present employees. As long as ‘all or most’ of the present employees are eligible to benefit the condition is satisfied.

If only employees that are resident in the UK can benefit, you must consider the whole company and make sure that the number of overseas employees is not more than the number of UK employees (IHTM42928).

When considering the test, you must take care that persons specifically excluded by the trust document (such as participators or persons connected with them as described in IHTA84/S28(4) (IHTM42950) or IHTA84/S13(2) (IHTM42962) do not represent over 50 per cent of the employees.