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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Employee benefit trusts: property leaving employee benefit trusts: payment of PAYE and NICs

Where PAYE and NICs arises on an allocation of funds within the trust that is treated as remuneration that is subject to PAYE some employee benefit trusts will contain clauses where the trustees are obliged to pay the PAYE and NICs on behalf of a settlor or employer. No exit charge will arise on the funds used to make that payment as this obligation is a liability of the trust. The trustees’ rights over the property contained in the settlement means that only the net trust fund (after payment of the PAYE and NICs) is subject to potential Inheritance Tax charges.

Where the trust only contains a power under which the trustees may pay the PAYE and NICs, rather than obliging them to pay, you may accept that no exit charge arises in respect of funds that are actually used to pay the PAYE and NICs and are not recovered from a third party.