Glossary · UK
What is Employee Benefit Trust (EBT)?
A discretionary trust used by employers to reward or retain employees, now tightly regulated by HMRC's disguised remuneration rules under Part 7A ITEPA 2003.
Full Definition
An Employee Benefit Trust (EBT) is a discretionary trust established by an employer, with employees (and sometimes their families) as beneficiaries. Historically, EBTs were used to provide benefits or loans to employees in a tax-efficient way -- for example, by making large loans that were never intended to be repaid, thereby avoiding Income Tax and National Insurance on what was in substance remuneration. HMRC introduced the "disguised remuneration" rules in Part 7A of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), which apply from April 2011. Under Part 7A, any arrangement that provides a reward or recognition for an employee via a third party (including an EBT) is broadly treated as employment income when the relevant "relevant step" is taken -- for example, when an asset is earmarked, a loan is made, or funds are transferred. Critically, the 2019 Loan Charge also caught historic pre-2011 EBT loans outstanding on 5 April 2019, creating a significant retroactive tax charge for many individuals. Legitimate uses of EBTs do still exist -- for example, holding shares as part of an approved employee share plan (EMI or CSOP) or distributing employer contributions to a recognised group pension arrangement. However, any new EBT arrangement must be carefully scrutinised against Part 7A to ensure it does not trigger an unwanted income tax charge. HMRC has an EBT Settlement Opportunity for historic arrangements.