SolvedCG67840 | Reliefs: employee-ownership trusts: conditions: the 'all-employee benefit requirement': the 'equality requirement': circumstances in which requirement not infringed
From HM Revenue & Customs · Capital Gains Manual
The ‘equality requirement’ is not infringed by the trusts of the settlement by reason only that they fall within one or more of the situations below.
The trusts permit the settled property to be applied, where an ‘eligible employee’ has died, as if the surviving spouse, civil partner or dependant of the deceased person were the ‘eligible employee’ for a period of up to 12 months starting with the time of death. For this purpose it is assumed that the employment continued throughout the period after death.
Example 14
The trust deed of the Lesath Widgets Limited EOT permits the trustees to apply settled property for the benefit of a surviving spouse or civil partner of an ‘eligible employee’ of Lesath Widgets Limited for up to six months after the death of that employee. This provision of the deed does not infringe the ‘equality requirement’.
The trusts prevent the settled property being applied for the benefit of persons who have not been eligible employees for a continuous period of 12 months or such shorter period as the trusts provide. This allows temporary and recently-recruited permanent employees to be excluded, within limits, from benefit under the settlement.
Example 15
The trust deed of the Minelauva Widgets Limited EOT does not allow settled property to be applied for the benefit of an ‘eligible employee’ of Minelauva Widgets Limited who is undertaking a period of probation with the company. Although this might effectively exclude from benefit only recently-recruited employees of Minelauva Widgets Limited whose probationary periods were a year or less, the trusts of the EOT would permit the trustees not to apply settled property for the benefit of an employee undertaking a two-year probationary period. This infringes the ‘equality requirement’, as the trusts permit the settled property to be applied otherwise than for the benefit of all ‘eligible employees’ on the same terms, and does not fall within the saving provision above.
The trusts permit the trustees to comply with a written request from a person that the trustees do not apply any of the settled property for the benefit of that person.
The trusts prevent the settled property being applied for the benefit of persons who are eligible employees by reason only that they are office holders in the company. Although both employees and office holders are eligible employees, see CG67838, this provision means that individuals who are office holders but not employees may be excluded from benefit under the settlement. Where this exclusion is used it must apply to all individuals in that category.
Example 16
The trust deed of the Nihal Widgets Limited EOT prevents settled property from being applied for the benefit of any director or other office holder, however described, of Nihal Widgets Limited unless they are also an employee. This provision of the deed does not infringe the ‘equality requirement’.
The trusts, in addition to requiring the settled property to be applied for the benefit of all ‘eligible employees’ on the same terms, permit the settled property to be applied for charitable purposes.