Bonuses from company owned by employee-ownership trust

By Tolley
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The following Employment Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Bonuses from company owned by employee-ownership trust
  • Background
  • Conditions to be met by the EOT
  • Conditions to be met by the company
  • The exemption for employee bonuses
  • The CGT relief
  • The IHT relief

Background

In the 2013 Budget, the Government announced that, following on from The Nuttall Review of Employee Ownership , it would be taking various actions to encourage and support indirect employee ownership in the UK. This was followed up by a consultation  on tax measures to encourage wider employee ownership, namely relief from capital gains tax on disposals of shares which lead to a controlling interest in a company being held by a qualifying employee ownership trust (EOT) and, where the company is so held, an exemption from income tax for certain bonus payments made to its employees. To remove another potential barrier to the establishment of EOTs, there is also inheritance tax relief available in respect of property disposed of to a qualifying EOT.

The main focus of this guidance note is on the exemption for bonuses paid to employees of an EOT-controlled company under ITEPA 2003, ss 312A–312I, although, it also briefly covers the CGT and IHT reliefs.

Conditions to be met by the EOT

For the purposes of all of the special exemptions in ITEPA 2003, ss 312A–312I, there are a number of conditions that must be met by the EOT and the company it controls.

The terms of the trust be such that the property settled on the trust may not be applied other than for the benefit of all eligible employees on the same terms. This is known as the ‘all-employee benefit’ requirement.

There can be nothing in the terms of the trust that would allow:

  • the making of loans to beneficiaries of the trust
  • the creation of another trust
  • the transfer of any settled property otherwise than to another trust that meets all the EOT conditions (thus allowing for

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