The legislation only excludes from a tax charge any scholarship provided from a trust fund or under a scheme for full time education or instruction where:

• in the relevant tax year not more than 25% by value of the awards go to members of the families or households of the employees, whether or not the employee:
  • is in an excluded employment (as defined at EIM20007)
  • is resident or ordinarily resident in the UK, or
  • the duties of the individual's employment are performed outside the United Kingdom and
• the award was not provided by reason of the parents' employment (disregarding for this purpose only the extended meaning given to this phrase in by reason of the employment).

Thus scholarships awarded to the children of all employees, whether or not the employees are in excluded employments or are working overseas, are taken into account for the purpose of the 25% test mentioned above.

Furthermore, the 25% test cannot operate to prevent a tax charge unless the connection between the award and the parents' employment is purely fortuitous.

Level 3 Table of Contents