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HMRC internal manual

Inheritance Tax Manual

Employee benefit trusts: conditions for relief: insolvency

If the trustees can, without altering the terms of the trust, allow a non-qualifying beneficiary to receive some benefit during the existence of the trust it will not satisfy IHTA84/S86 at the outset.

For example, if the trust assets are subject to the claims of the company’s creditors in the event of insolvency, IHTA84/S86 is not satisfied. The insolvency does not by itself terminate the employee benefit trust, unless the terms of trust specifically state that this is the case. So the settled property may still be held for the benefit of the beneficiaries whilst the trust is ongoing, but as a relevant property trust.