Inheritance Tax Act 1984 section 13

Dispositions by close companies for benefit of employees

Section 13 provides an exemption from inheritance tax when a close company transfers property to an employee benefit trust, subject to conditions about who may benefit from the trust.

• A close company's transfer of property to an employee benefit trust is not a transfer of value for IHT purposes, provided the trust benefits all or most employees (or office holders) of the company or its subsidiaries.
• The exemption is denied if the trust allows property to be applied for the benefit of participators in the company (or connected persons), including anyone who was a participator at any time after, or during the ten years before, the relevant disposition.
• Small participators — those with less than 5% of any class of shares and entitled to less than 5% of assets on winding up — are excluded from the participator restriction, and certain income distributions and approved share scheme appropriations are also disregarded.
• A new rule (from Finance Act 2025) prevents the income distribution carve-out from applying where more than 25% of relevant beneficiaries who are employees or office holders of the company would otherwise fall within the excluded participator categories.