IHTM42953 - Employee benefit trusts: dispositions by a company: general
A charge to tax cannot arise on contributions that are made to an employee benefit trust (EBT) by a company that is not a close company (IHTM42955). This is because a chargeable transfer (IHTM04027) can only be made by an individual, IHTA does not generally apply to a public limited company; although see (IHTM42955).
Even so, where a company is the settlor of an EBT, the trust itself will be subject to Inheritance Tax in the normal way. The long-term UK residence (IHTM47000) status of the settlor (on or after 6 April 2025) or the domicile (IHTM13000) of the settlor (before 6 April 2025) will be particularly relevant.
Long-term residence of settlor
On or after 6 April 2025, the long-term UK residence status of the settlor is relevant when considering whether or not property situated outside the UK is excluded property (IHTM16162). IHTA84/S6C confirms that a company is a long-term UK resident at all times in a tax year if it was incorporated in the UK or if it was chargeable to corporation tax by virtue of CTA09/S5(1) in the previous tax year (see IHTM47025) and (INTM120030)
Domicile of settlor
For times before 6 April 2025, the domicile of the settlor was relevant when considering whether or not property situated outside the UK is excluded property (IHTM16162). A company is treated as a ‘person’ and as IHTA84/S44 defines settlor as including any person who made the settlement you may need to establish the company’s domicile. Generally, a company is domiciled where it is registered - Gasque v IRC [1940] 2KB 80. So, where a trust settled by an overseas company contains only overseas assets, that property will be excluded from any Inheritance Tax charges under IHTA84/S48(3).
The employer company may be non-UK domiciled, but nonetheless have been resident in the UK through central management and control here, for a number of years. The wording in IHTA84/S267 is in terms of persons, which includes companies, for the purposes of the UK deemed domicile (IHTM13024) test. IHTA84/S267 applies to companies as it applies to individuals, so that a company will become deemed domiciled for IHT purposes after it has been resident here during 17 out of the last 20 tax years.
Identifying the entity
Where the company is a multi-national with a presence in the UK, you will need to establish the source of the contributions to the trust. If the payment was from an entity based in the UK, you will need to establish whether the UK entity is a separate branch of the company or a ‘permanent establishment’ in the UK. A separate branch is likely to be registered in the UK so any contributions will be made by a long-term UK resident body corporate (on or after 6 April 2025) or a person domiciled in the UK (before 6 April 2025). A UK permanent establishment is not a separate legal person, but is part of the overseas company, so any contributions by a UK permanent establishment will be made by a body corporate which is not long-term UK resident (on or after 6 April 2025) or a person domiciled outside the UK (before 6 April 2025).