HMRC rewrites inheritance tax manual

The tax office has drawn up a new inheritance tax manual to explain its current thinking and approach.

Employee benefit trusts get relief from inheritance tax if they meet certain conditions set out by HM Revenue & Customs in an update to its manuals.

The term employee benefit trust is used to describe a number of different sorts of trust, although they are generally discretionary trusts.

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In general an employer sets up an EBT as a vehicle used in a scheme to reward, and motivate employees.

The benefits may be pensions, sick pay, a share of profits, shares or almost anything the employer chooses.

These trusts get relief from Inheritance Tax if they meet the conditions at IHTA84/S86 (IHTM42911).

These conditions state it does not matter if the trustees, or some other person, has the power to alter the trusts, so that persons outside the specified classes in IHTA84/S86(1) could benefit.

Nor does it matter if the existing trusts provide that other persons may benefit in the future.

The trusts that actually apply to the settled property at the time the inheritance tax charge must be considered.

If the trusts were altered in a way or if reversionary trusts came into operation which did not satisfy the requirements of IHTA84/S86(1), the relief from relevant property trust charges would no longer apply.

Where a trust is altered in such a way that the relief no longer applies the trust becomes a relevant property trust (IHTM42161) unless it falls within one of the categories of other trusts outlined in the updated manual.

For a summary of HMRC’s new manual, read FTAdviser’s Regulation Tracker.