Inheritance Tax Act 1984 section 28

Employee trusts

Section 28 provides an inheritance tax exemption when an individual transfers shares into an employee benefit trust, subject to strict conditions about trust control, ownership duration, and the exclusion of participators from benefiting.

• A transfer of shares into an employee trust is exempt from inheritance tax provided the trust benefits all or most employees, the individual has owned the shares for at least two years, and the trustees end up holding a majority of ordinary shares with majority voting power.
• The exemption is blocked if the trust permits any of the settled property to be applied for the benefit of participators who hold 5% or more of the company's shares or assets, or persons connected with such participators.
• Payments that count as income for income tax purposes are generally disregarded when assessing whether property can be applied for participators, but this carve-out does not apply if more than 25% of the relevant employee beneficiaries are participators or connected persons.
• Where a reorganisation of share capital has taken place, the two-year ownership requirement traces back to the original shares that gave rise to the new holding.