Inheritance Tax Act 1984

28 Employee trusts. U.K.

(1) A transfer of value made by an individual who is beneficially entitled to shares in a company is an exempt transfer to the extent that the value transferred is attributable to shares in or securities of the company which become comprised in a settlement if—

(a) the trusts of the settlement are of the description specified in section 86(1) below, and

(b) the persons for whose benefit the trusts permit the settled property to be applied include all or most of the persons employed by or holding office with the company [F1 , and

(c) the individual has, throughout the period of two years ending with the date of the transfer, been beneficially entitled to the shares in or securities of the company that become comprised in the settlement.]

(2) Subsection (1) above shall not apply unless at the date of the transfer, or at a subsequent date not more than one year thereafter, both the following conditions are satisfied, that is to say—

(a) the trustees—

(i) hold more than one half of the ordinary shares in the company, and

(ii) have powers of voting on all questions affecting the company as a whole which if exercised would yield a majority of the votes capable of being exercised on them; and

(b) there are no provisions in any agreement or instrument affecting the company’s constitution or management or its shares or securities whereby the condition in paragraph (a) above can cease to be satisfied without the consent of the trustees.

(3) Where the company has shares or securities of any class giving powers of voting limited to either or both of the following—

(a) the question of winding up the company, and

(b) any question primarily affecting shares or securities of that class,

the reference in subsection (2)(a)(ii) above to all questions affecting the company as a whole shall be read as a reference to all such questions except any in relation to which those powers are capable of being exercised.

(4) Subsection (1) above shall not apply if the trusts permit any of the settled property to be applied at any time (whether during any such period as is referred to in section 86(1) below or later) for the benefit of—

[F2 (a) a person who is, at the time of the transfer of value mentioned in subsection (1), a participator in the company mentioned in that subsection; or]

(b) any other person who is [F3 , at the time of the transfer of value mentioned in subsection (1),] a participator in any close company that has made a disposition whereby property became comprised in the same settlement, being a disposition which but for section 13 above would have been a transfer of value; or

(c) any other person who [F4 is] a participator in the company mentioned in subsection (1) above or in any such company as is mentioned in paragraph (b) above at any time after, or during the ten years before, the transfer of value mentioned in subsection (1) above; or

[F5 (d) any person who is, at the time of the transfer of value mentioned in subsection (1) or any later time, connected with a person within paragraph (a), (b) or (c).]

(5) The participators in a company who are referred to in subsection (4) above do not include any participator who—

(a) is not beneficially entitled to, or to rights entitling him to acquire, 5 per cent. or more of, or of any class of the shares comprised in, its issued share capital, and

(b) on a winding-up of the company would not be entitled to 5 per cent. or more of its assets.

(6) In determining whether the trusts permit property to be applied as mentioned in subsection (4) above, no account shall be taken of any power to make a payment which is the income of any person for any of the purposes of income tax, or would be the income for any of those purposes of a person not resident in the United Kingdom if he were so resident.

[F6 (6A) Subsection (6) does not apply if, immediately after the transfer of value mentioned in subsection (1), more than 25% of relevant beneficiaries are (disregarding subsection (6)) persons falling within subsection (4)(a) to (d).

(6B) In subsection (6A) “relevant beneficiary” means a person who—

(a) is a person for whose benefit the trusts permit the settled property to be applied, and

(b) is a person employed by or holding office with the company mentioned in subsection (1).]

(7) Subsection (5) of section 13 above shall have effect in relation to this section as it has effect in relation to that section.

[F7 (8) A reference in subsection (1)(c) to shares in or securities of a company includes, in a case in which a reorganisation of share capital has occurred, the original shares to which the new holding relates.

(9) In subsection (8)—

(a) “reorganisation of share capital” means a transaction to which section 127 of the 1992 Act (equation of original shares and new holding) applies or would apply but for section 134 of that Act;

(b) “the original shares” and “the new holding” have the meaning given by section 126(1) of the 1992 Act.]

Textual Amendments

F1 S. 28(1)(c) and word inserted (30.10.2024) by Finance Act 2025 (c. 8), s. 60(2)(a)(4)

F2 S. 28(4)(a) substituted (20.3.2025) by Finance Act 2025 (c. 8), s. 58(3)(a)

F3 Words in s. 28(4)(b) inserted (20.3.2025) by Finance Act 2025 (c. 8), s. 58(3)(b)

F4 Word in s. 28(4)(c) substituted (20.3.2025) by Finance Act 2025 (c. 8), s. 58(3)(c)

F5 S. 28(4)(d) substituted (20.3.2025) by Finance Act 2025 (c. 8), s. 58(3)(d)

F6 S. 28(6A)(6B) inserted (30.10.2024) by Finance Act 2025 (c. 8), s. 59(3)(5)

F7 S. 28(8)(9) inserted (30.10.2024) by Finance Act 2025 (c. 8), s. 60(2)(b)(4)