Specific warning

Employee benefit trusts

The case concerned alleged professional negligence in relation to advice on a tax planning arrangement to avoid capital gains tax and inheritance tax. It was based on the establishment of an employee benefit trust (EBT) offshore the transfer of company shares by way of gift to the trust and the creation of a subtrust whose beneficiaries included members of the transferor’s family – although they were excluded from benefit until after the transferor died.

For the inheritance tax (and thus the capital gains tax) exemption to apply the trust had to fall within IHTA 1984 s 28. This meant it must not permit the settled property to be applied at any time for the benefit of a person who is a participator or a person who is connected with a participator (s 28(4)(d)). There was a dispute between the taxpayer and HMRC...