Following a consultation launched at Budget 2013, three new tax reliefs will be introduced to encourage and promote indirect employee ownership, whereby shares are held collectively on behalf of the employees. An employee benefit trust (EBT) is often used to facilitate this. The new reliefs are as follows:
Capital gains relief
A sale or gift of shares to an EBT is normally treated as a disposal for capital gains tax (CGT) purposes which could give rise to a taxable gain. From 6 April 2014, the sale of a controlling interest to an indirect employee-ownership structure such as an EBT, will be exempt from CGT.
Inheritance tax relief
This appears to be an extension to the original consultation. Subject to meeting certain conditions, the transfer of shares and other assets to EBTs will also be exempt from inheritance tax (IHT).
Income tax relief
With effect from October 2014, bonus payments made to employees of a company which is under the control of an EBT, which are normally taxed under PAYE, will be exempt from income tax and presumably NIC (as outlined in the consultation) although this is not clarified, up to a cap of £3,600 each year.
The government believes that the introduction of these reliefs will increase the attractiveness of indirect employee ownership structures. This is somewhat ironic given HMRC’s stance on the existence of EBTs over recent years, which culminated in the introduction of the disguised remuneration rules. We await the full details in the 2014 Finance Bill with interest. No doubt appropriate safeguards will be contained within the new rules relating to these exemptions.
For further information on these changes call the TaxDesk on 0845 4900 509 and ask for Martin Mann.