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HMRC internal manual

Inheritance Tax Manual

Employee benefit trusts: Employee Ownership Trusts: introduction

An Employee Ownership Trust (EOT) is a trust designed to encourage employee ownership of the company they work for. It is a type of employee benefit trust (EBT) but the requirements that must be met for a trust to qualify as an EOT are contained in the Capital Gains Tax legislation in Part 7 of the TCGA 1992.

The CGT provisions provide relief for disposals of ordinary company shares to EOTs and there are related Income Tax provisions that provide exemption from Income Tax for certain bonus payments made by a company owned by an EOT.

The requirements to qualify as an EOT (IHTM42996) are stricter than those in IHTA/S86 to qualify as an EBT. So it is likely that many EOTs will also qualify as an EBT with the result that the existing IHT legislation can apply to disposals made to an EOT. However, to make sure that all EOTs benefit from the same treatment for IHT purposes, FA14 introduced a number of new sections to the IHTA (IHTM42997) that apply to transfers made on or after 6 April 2014.