Inheritance Tax Act 1984 section 86

Trusts for benefit of employees

Section 86 provides relief from inheritance tax for employee benefit trusts (EBTs) that meet certain qualifying conditions, including requirements about who can benefit and how broadly the class of beneficiaries is defined.

• An EBT qualifies for IHT relief where the trust property can only be applied for the benefit of persons defined by their employment in a trade or profession, or by their relationship to or dependence on such persons
• Where beneficiaries are defined by employment with a particular body, the class must comprise all or most (more than 50%) of the employees or officeholders, unless the trust is an approved profit sharing scheme, share incentive plan, or meets the controlling interest and all-employee benefit requirements
• Trusts that also permit property to be applied for charitable purposes do not lose their qualifying status, and the settled property is treated as comprised in one settlement with interests in possession below 5% of the whole being disregarded
• If qualifying property moves from one settlement to another within one month and continues to satisfy the conditions, it is treated as having remained in the first settlement throughout