IHTM42902 | Employee benefit trusts: changes to legislation from 30 October 2024

From HM Revenue & Customs · Inheritance Tax Manual

Legislation in Finance Act 2025 introduces changes from 30 October 2024 to ensure the tax treatment of Employee Benefit Trusts is consistent with the original policy intent.

The changes confirm HMRC’s position that restrictions on connected persons benefiting from the Employee Benefit Trust (EBT) must apply for the lifetime of the trust. It also places restrictions on the exemption to where shares have been held for two years prior to settlement into an EBT and requires that no more than 25% of employees who are able to receive income payments from an EBT should be connected to the participators of the company.

The following changes that were made are outlined in further detail below:

HMRC’s position has been made explicit in the legislation that the restrictions on connected persons benefiting from an EBT must apply for the lifetime of the trust. This change to the legislation, IHTA84S28, reflects the original policy intent, and HMRC’s approach, but puts the matter beyond doubt.
For transfers on or after 30 October 2024, in order for IHTA84/S28 to apply the individual must have, throughout the period of two years ending with the date of the transfer, been beneficially entitled to the shares in or securities of the company that become comprised in the settlement. The shares or securities of the company includes, where there has been a reorganisation of share capital, the original shares to which the new holding relates. The definitions of “reorganisation of share capital”, “the new holding”, and “the original shares” have the meaning given to them in sections 126 and 134 of TCGA 1992 (IHTM42950).
For transfer on or after 30 October 2024, IHTA84/S28(6) does not apply if, immediately after the transfer of value mentioned in IHTA84/S28(1), more than 25% of relevant beneficiaries are (disregarding IHTA84/S28(6)) persons falling within IHTA84/S28 (4)(a) to (d).

For this purpose “relevant beneficiary” means a person who—

(a) is a person for whose benefit the trusts permit the settled property to be applied, and

(b) is a person employed by or holding office with the company mentioned in IHTA84/S28(1) (IHTM42950).

Similar changes have been made to s13 IHTA 84, in respect of dispositions by close companies.