Employee Benefit Trusts

Employee Benefit Trusts have been established for a number of years to encourage employee share participation and have principally operated as an incentive to staff loyalty and productivity.  The term Employee Benefit Trust is applied to a number of different types of trust. In general an employer sets up an Employee Benefit Trust as a vehicle to reward, motivate and incentivise employees. The benefits provided may be a share of profits, shares in the employer company, cash distributions and other employee incentives.

Features of Employee Benefit Trusts (EBTs)

EBTs take the form of discretionary trusts holding cash and other assets on behalf of a class of beneficiaries.  The class of beneficiaries will often include the current, future and former officers and employees of the company and their families.  The trusts will be funded by an employer company making periodic voluntary contributions. The trustees, in consultation with the employer company or its representative committee, will provide employee benefits in recognition of performance and other related factors.

Although the employer company or its representative committee may assist the trustees in the exercise of their discretion and can advise them on how their discretion should be exercised, such advice is not binding on the trustees and so will not infringe statutory conditions.

Advantages

• The operation of employee share plans including Joint Share Ownership Plans (JSOPS)
• An EBT can act as a market maker for the sale and purchase of shares in the employer company
• Share warehousing
• Capital gains fall outside of the UK
•  Corporation tax deductions are achievable provided benefits have been granted to trigger a chargeable event
• The rolling up of income in a low tax environment
• Potentially outside of the inheritance tax regime