Employee benefit trusts: sub-trusts: introduction
Where an employee benefit trust which meet the requirements of IHTA84/S86(1) establishes sub-trusts, it is important to consider the terms of those sub-trusts to see whether they also meet the requirements of IHTA84/S86(1) (IHTM42911). You should look carefully to see whether, in particular, the ‘all or most’ requirement in IHTA84/S86(3) is met (IHTM42915).
The purpose of a sub-trust is often to identify funds that may only benefit a certain group of people, such as a named employee and their family, so it is unlikely that the ‘all or most’ requirement will be met.
Where sub-trusts are established which do not meet the requirements of IHTA84/S86:
- the appointment on to sub-trusts could give rise to a flat rate charge to Inheritance Tax under IHTA84/S72. This charge arises where settled property ceases to qualify under IHTA/S86(1) other than by a payment out of the settled property. This is calculated at 0.25 per cent for each complete quarter that the funds have been held in trust (IHTM42801) but there is no charge on transfers made within the first quarter (IHTM42981).
- the property in the sub-trusts will be relevant property (IHTM42161) and will be subject to the ten year (IHTM42081) and exit charges (IHTM42110) unless the sub-trusts qualify as a sponsored superannuation schemes (IHTM17039).
These provisions apply whether the trust is set up by an individual, a close company or a plc