Employee benefit trusts and inheritance tax considerations
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Practice notesEmployee benefit trusts and inheritance tax considerations
Published by a LexisNexis Share Incentives expert
Practice notes
Overview of potential IHT charges
It is important when establishing or operating an employee benefit trust (EBT) that the potential for inheritance tax (IHT) charges to arise is considered carefully. The following questions should be asked:
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does the EBT meet the requirements of section 86 of the Inheritance Tax Act 1984 (IHTA 1984) (a section 86 trust)?
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does the EBT have sub-trusts (and if so, is it still a section 86 trust)?
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is the company funding the EBT a close company?
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how are the beneficiaries intended to receive benefits from the EBT?
Inheritance tax issues for the trustees of an EBT
As a general rule, property comprised in a discretionary settlement such as an EBT is subject to the IHT regime. Where an IHT charge arises, it is payable by the trustees of the settlement.
However, trusts which are for the benefit of employees which meet the specific requirements of IHTA 1984, s 86 ('Section 86 trusts') qualify for various exemptions from the IHT regime (such as the exit and
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Jurisdiction(s):
United Kingdom
Related legal acts:
Key definition:
Employee definition
What does Employee mean?
Persons satisfying case law tests for employee status qualify for the broadest scope of employment protections. Statutory definitions of employee vary. The Employment Rights Act 1996 defines employee as an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment.
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