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HMRC internal manual

Inheritance Tax Manual

Employee benefit trusts: associated issues: health care trusts

‘All or most’ test

Generally, Health Care Trusts are set up to provide the company’s employees with insurance against the cost of medical expenses and a condition must be satisfied before eligibility to benefit can be established. The member concerned must have undergone medical treatment, and incurred costs which should be reimbursed from the trust. Effectively this means the beneficial class is confined to those members who have undergone medical treatment so this condition makes it impossible for the ‘all or most’ test at IHTA84/S86(3) to be satisfied (IHTM42915).

Separate settlements

As the trust will fail the ‘all or most’ test the funds in a Health Care Trust will be ‘relevant property’ for Inheritance Tax purposes. But, as the company is making contributions to the Trust which form part of the member’s remuneration (in a similar way to an employer’s contribution to an employee’s pension scheme (IHTM17043) we take the view that the funds are multiple settlements made by the various members concerned. On that basis it is unlikely that tax might be payable.