An Employee Benefit Trust (EBT) is usually a discretionary trust set up by an employer for the benefit of its employees and directors. Where the employer is a member of a group of companies the trust may be set up by the parent company in the group, for the benefit of employees of all or selected group companies.
An EBT is established when the person setting it up (the
‘settlor’) settles property, usually by transferring a
nominal sum of money to the trustees.
EBTs may be established within or outside the UK, and under
UK or foreign law. A UK resident EBT is liable to income tax and
capital gains tax in the same way as any other discretionary trust.
A non-UK resident EBT (an ‘offshore trust’) is only
liable to UK income tax on its UK source income and is not liable
to UK capital gains tax.
The company establishing the trust will appoint the trustees, who may be directors, employees or independent persons. In some cases the trustee may be another company (a corporate trustee) in the same group as the company which set up the trust. The trustees are likely to have discretion to apply all or part of any income in favour of one or more persons within the class of beneficiaries defined in the trust deed.
The trustees will hold as part of the trust fund:
The defined class of beneficiaries under an EBT, in addition to
current employees and directors, will commonly also include
ex-employees and ex-directors, spouses and minor children.
The trust deed will also specify a ‘residuary
beneficiary’ (usually a charity such as the Red Cross of
Geneva) to whom the trust fund is to be distributed when the trust
is wound up, if at that time there is no longer anyone within the
defined class of beneficiaries.
EBTs set up with UK resident trustees will have a life of up to 80 years (the ‘perpetuity period’), in accordance with the Perpetuities and Accumulation Act, although they may be wound up earlier than that. Trusts set up offshore may have longer perpetuity periods.
