IHTM42953 - Employee benefit trusts: dispositions by a company: general
A charge to tax cannot arise on contributions that are made to an employee benefit trust (EBT) by a company that is not a close company (IHTM42955). This is because a chargeable transfer (IHTM04027) can only be made by an individual, IHTA does not generally apply听to a public limited company; although see (IHTM42955).听
Even so, where a company is the settlor of an EBT, the trust itself will be subject to Inheritance Tax in the normal way. The long-term UK residence听(IHTM47000)听status of the settlor (on or after 6 April 2025) or the domicile听(IHTM13000)听of the settlor听(before 6 April 2025)听will be particularly relevant.听
Long-term residence of settlor听
On or after听6 April听2025, the long-term UK residence status听of the settlor is relevant when considering whether or not听property situated outside the UK is excluded听property听(IHTM16162).听 IHTA84/S6C confirms that a company is a long-term UK听resident at all times听in a tax year if it was incorporated听in the UK or if it was chargeable to corporation tax by virtue of CTA09/S5(1) in the previous听tax year听(see IHTM47025)听and (INTM120030)听
Domicile of settlor听
For times before 6 April 2025, the domicile of the settlor was relevant when considering whether or not听property situated outside the UK is excluded property (IHTM16162). A company is treated as a 鈥榩erson鈥� and as IHTA84/S44 defines settlor as including any person who made the settlement you may need to establish听the company鈥檚 domicile. Generally, a听company is domiciled where it is registered - Gasque听v IRC [1940] 2KB 80. So, where a trust settled by an overseas company contains听only overseas assets, that property will be excluded from any Inheritance Tax charges under IHTA84/S48(3).听
The employer company may be non-UK domiciled, but听nonetheless have been resident in the UK through central management and control here, for a number of听years. The wording in IHTA84/S267 is in terms of persons, which includes companies, for the purposes of the UK deemed听domicile听(IHTM13024)听test. IHTA84/S267 applies to companies as it applies to individuals, so that a company will become deemed听domiciled for IHT purposes after it has been resident here during 17 out of the last 20 tax years.听
Identifying听the entity听听
Where the company is a multi-national with a presence in the UK, you will need to establish听the source of the contributions to the trust. If the payment was from an entity based in the UK, you will need to establish听whether the UK entity is a separate branch of the company or a 鈥榩ermanent establishment鈥� in the UK. A separate branch is likely to be registered in the UK so any contributions will be made by a听long-term听UK resident body corporate (on or after 6 April 2025) or a person domiciled in the UK听(before 6 April 2025). A UK permanent establishment is not a separate legal person, but is part of the overseas company, so any contributions by a UK permanent establishment will be made by听a听body corporate which is not long-term UK resident (on or after 6 April 2025)听or听听a听person domiciled outside the UK听(before 6 April 2025).