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HMRC internal manual

Inheritance Tax Manual

Employee benefit trusts: property leaving employee benefit trusts: granting of share options

No charge arises where the trustees, in the course of exercising their discretion, grant share options to employees at open market values.

If the grant is at less than the open market value then an Inheritance Tax charge could arise under IHTA84/S72(2)(c) (IHTM42982), as a disposition other than by way of payment out of settled property. In this case the grant of the option would be a disposition which caused a decrease in the value of the settled property.

Each case would be decided on its facts; and for there to be any material consequences there would need to be a disposition, a depreciation of the value of the trust funds and a credit balance in the first place. Valuing any depreciation on the granting of the option would be extremely difficult but that does not mean you should not pursue the claim in the appropriate circumstances.

There is no claim on the subsequent exercise of the option because the value reducing exercise has already taken place (on the grant of the option).