Employee benefit trusts—UK taxation issues
Produced in partnership with Karen Cooper of Cooper Cavendish

The following Tax practice note produced in partnership with Karen Cooper of Cooper Cavendish provides comprehensive and up to date legal information covering:

  • Employee benefit trusts—UK taxation issues
  • Why do companies establish EBTs?
  • Who can act as trustees of an EBT?
  • How is an EBT funded?
  • Corporation tax deductions for EBTs
  • Inheritance tax
  • Capital gains tax for UK resident EBTs
  • Section 218 notices
  • Trust registration service
  • Post disguised remuneration

Employee benefit trusts—UK taxation issues

Employee benefit trusts (EBTs) are commonly used to support employees' share schemes and to provide other benefits to employees in the form of pensions and bonuses.

Their use has been significantly affected by the disguised remuneration rules in the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), Part 7A (see: EIM45000–EIM45165). Although the statutory exclusions from those rules cover many of the share-scheme related activities of EBTs, some of their historic uses, such as providing loans to employees, or opportunities for wealth creation through long-term investment schemes have been substantially curtailed.

For further background on EBTs and pensions tax planning before the introduction of the disguised remuneration rules, see Practice Note: Disguised remuneration—tax planning environment before rules introduced.

However, the use of EBTs as a vehicle for employee ownership had a welcome boost following the Nuttall Review, which encouraged the use of employee trusts as vehicles for the long-term ownership of companies and pressed for a simplification of the tax and regulatory framework. As a result, new tax advantages were introduced in Finance Act 2014 (FA 2014) for employee owners who dispose of their interests to employee ownership trusts (EOTs).

Why do companies establish EBTs?

An EBT is usually established by a company (the sponsoring company) which provides it with assets in the form of cash or shares for the benefit of its employees.

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