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HMRC internal manual

Inheritance Tax Manual

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HM Revenue & Customs
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Employee benefit trusts: Employee Ownership Trusts: qualifying conditions

For a trust to qualify as an Employee Ownership Trust (EOT) for the purposes of obtaining CGT relief on disposals to it, it must meet a number of conditions. These are

  • the trading requirement, set out in TCGA92/S236I, is met at the time of the disposal and throughout the remainder of the tax year in which the disposal is made,
  • the all-employee benefit requirement, set out in TCGA92/S236J and S236K, is met at the time of the disposal and throughout the remainder of the tax year in which the disposal is made,
  • the controlling interest requirement, set out in TCGA92/S236M and S236R, is not met at the beginning of the tax year when the disposal is made, but is met at the end of that tax year, and once met during the tax year in which the disposal is made must do so throughout the remainder of the tax year, and
  • the limited participation requirement, set out in TCGA92/S236N is met.

These CGT provisions apply to disposals made on or after 26 June 2014 with some transitional provisions applying to disposals on or after 6 April 2014 but before 26 June 2014.

Of these, it is the all-employee benefit requirement that may mean that an EOT cannot qualify as an EBT. This is because TCGA92/S236K(1) contains a number of relaxations to this requirement and should any of these relaxations apply, it is possible that the ‘all or most’ test in IHTA84/S86(3) will not be met. So FA14 introduced a number of sections to the IHTA (IHTM42997) so that all EOTs can qualify for the same treatment for IHT purposes. These provisions apply to transfers made on or after 6 April 2014.