Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Employee definition

What does Employee mean? Describes an individual engaged under a contract of employment (a contract of service) who enjoys the fullest employment law protections, such as unfair dismissal, redundancy pay, statutory notice and much family leave. In practice, employee status is determined by legislation read with case law on the reality of the relationship, typically examining personal service (no unfettered substitution right), employer control, and mutuality of obligation, alongside integration and other indicia. In England & Wales and Scotland, the Employment Rights Act 1996 defines an employee as an individual who has entered into or works under (or, where employment has ceased,...

UK inheritance tax (IHT) and employee benefit trusts: section 86 qualification, discretionary trust charges, sub-trust risks, close company charges, and EOT reliefs (including 30 October 2024 changes)

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Practice notes

Overview of potential IHT charges

When setting up or running an employee benefit trust (EBT), it is essential to assess the likelihood of inheritance tax (IHT) liabilities. Consider the following:

Does the EBT satisfy section 86 of the Inheritance Tax Act 1984 (IHTA 1984), making it a section 86 trust?
Does the EBT include any sub-trusts and, if so, does it still fall within section 86?
Is the company providing funds to the EBT a close company?
In what manner will beneficiaries receive value from the EBT?

Inheritance tax issues for the trustees of an EBT

As a broad principle, assets held in a discretionary arrangement such as an EBT come within the IHT framework. Where a charge to IHT arises, the trustees of the settlement are responsible for payment. That said, employee trusts which satisfy the detailed conditions in IHTA 1984, s 86 (‘Section 86 trusts’) benefit from specific exemptions from the IHT regime, including relief from the exit and ten-year charges noted below. Employee-ownership trusts (EOTs), a distinct category of employee trust, can obtain the same IHT protections where the requisite conditions are met...

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Web page updated on 21/05/2026

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