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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: exemptions from Inheritance Tax

FA14/Sch37/Part 3 makes a number of additions to the IHTA to ensure that an Employee Ownership Trust (EOT) is treated in a similar way to an Employee Benefit Trust (EBT) for IHT purposes. All these amendments apply to transfers made on or after 6 April 2014.

IHTA84/S86(3)(d) provides for an EOT that meets a number of conditions to qualify as a trust to which IHTA84/s86 applies. These are

  • the property settled must consist of or include ordinary share capital in a company which meets the trading requirement in TCGA92/S236I,
  • the trust must meet the controlling interest requirement in TCGA1992/S236M and 236R, and
  • the trust must meet the all-employee benefit requirement in TCGA1992/S236J and K.
  • IHTA84/S86(3A) provides the necessary links to the TCGA92 requirements .

IHTA/S13A provides that a disposition (IHTM04023) by a close company (IHTM42955) to an EOT for the benefit of the company’s employees is not to be treated as a transfer of value, subject to three conditions being met as follows

  • the company must meet the trading requirement
  • the trust must meet the all employee benefit requirement
  • the trust must not meet the controlling interest requirement immediately before the beginning of the tax year in which the disposition occurs but must do so at the end of that year.

IHTA/S28A provides that transfer of value (IHTM04024) made by an individual of shares in a company to an EOT for the benefit of the company’s employees is exempt from IHT, subject to the same conditions being met as those which apply for S13A relief

IHTAS75A provides that an exit charge (IHTM42948) does not arise in respect of shares of securities of a company cease to be relevant property on becoming held on IHTA84/S86 trusts, subject to the same three conditions being met as those which apply for S13A relief

IHTAS72(3A) provides that a charge under IHTA84/S72(2)(a) (IHTM42982) does not arise where property remains settled property but no longer meets the requirements set out in IHTA84/S86(3)(d) if the company no longer meets one or both of the trading requirement and the controlling interest requirement.

There are other minor consequential amendments to IHTA84/S29A, IHTA84/S144 and FA86/S102(5)(j) to maintain consistency of treatment between EBTs and EOTs.