EBT/EOT—basic principles and set-up

What is an employee benefit trust (EBT)?

An employee benefit trust (EBT) is a discretionary trust for employees. Under it, the trust property of the EBT is held by a trustee for the benefit of a class of beneficiaries who are normally limited to the employees and former employees of the relevant company which established the EBT and those of its subsidiaries and certain dependents.

EBTs are used for a variety of reasons, but are most commonly established by a company in order to:

1. •

   acquire and hold shares in conjunction with an employee share scheme

2. •

   otherwise hold shares for the benefit of employees, and/or

3. •

   if the company is unquoted, to create an internal market for the company's shares (see Practice Note: Creating a market for shares in a private company)

An EBT is typically set up to fall within the following statutory provisions:

1. •

   the definition of a trust for the benefit of employees in section 86 of the Inheritance Tax Act 1984. This provides exemptions from inheritance tax (IHT) for certain transactions involving qualifying EBTs

1. •

   the definition