David Pett and Stephen Woodhouse, partners at Pett Franklin, discuss Employment Benefit Trusts in a webinar on 15 January 2015.
- An overview of EBT planning.
- HMRC’s historic approach.
- The settlement offer.
- Our experience so far.
- Scope for seeking settlement before 31 March 2015.
- The impact of disguised Renumuneration.
- Managing an EBT post 31 March 2015.
An Employee Benefit Trust is a trust which can be developed either in the UK or offshore and which is established by a company to hold money and other possessions, for instance shares, to supply advantage to workers and their families for the function of attracting and maintaining quality staff.
The Trust can hold shares in the establishing company. This permits a market in the business's shares to be developed for outbound shareholders; and also to please share alternatives approved by the company under any share plan. The Trust and the business are different legal entities, and when the company transfers property into the Trust, the trustees end up being the legal owners of that residential or commercial property.
The business is under no obligation to continue to fund the trust and the employee has no contractual right to take advantage of it. The Trust is established by a trust deed. The company's Board of Directors need to authorize the Trust in an official minute, providing the reasons the Trust was set up.
Trustees are independent from the company and can be paid for the service they provide. The trustees undergo the normal guidelines for taxation of trust earnings and capital gains. If the Trust is UK citizen, the trustees are subject to tax on earnings at 45% and at 28% on gains emerging in the Trust.
Benefits awarded are normally taxed as work income. Earmarking funds or advancing a loan to a worker will go through tax as employment income on the amount of the amount lent or allocated. Loans advanced to staff members before the guidelines changed on 9th December 2010 should continue to be taxed under the benefit in kind rules as employment associated loans providing they are real loans.
Discretionary trusts go through an inheritance tax charge on every tenth anniversary of the setting up of a trust and also when residential or commercial property leaves a trust. These charges do not request trusts for the benefits of staff members, provided they meet the criteria of s. 86 of the Estate Tax Act 1984 (the trust should be for the benefit of all or many of the individuals used by the copmany).</p>