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Inheritance Tax Manual - Guidance on Employee Benefit Trusts Updated

HMRC have updated the Inheritance Tax Manual guidance on the treatment of employee benefit trusts (EBTs) to reflect their current thinking and practice.

By way of reminder, EBT is used to describe a number of different sorts of trust, although these are generally discretionary trusts. In general an employer may set up an EBT as a vehicle used in a scheme to reward, and motivate employees. The benefits may be pensions, sick pay, a share of profits, shares or almost anything the employer chooses. These trusts can avail of relief from Inheritance Tax if they meet the conditions at Inheritance Tax Act 1984 (IHTA) Section 86.

Broadly this is the case where there is a transfer:

  • of shares or securities in a company by an individual (IHTA84/S28)
  • of shares or securities in a company from a discretionary trust (IHTA84/S75), or
  • by a close company (IHTA84/S12 and IHTA/S13)

Provided the conditions in these Sections are satisfied (or the transfer satisfies the conditions in IHTA84/S10), relief from Inheritance Tax on transfers into an EBT may be available where the value transferred is attributed to relevant business property.