Employee Benefit Trusts

An Employee Benefit Trust ("EBT") is a discretionary trust established or appointed by a company for the benefit of its employees.

In the past companies used EBTs to obtain corporation tax relief, but the tax deduction is no longer dependent on the existence of a trust arrangement. However, EBTs are still very useful structures and, in the case of the Share Incentive Plan (SIP), are a necessity.

Listed companies can use an EBT to buy shares in the market for the purpose of satisfying purchases and awards under its employee share plans. It can be used as a hedging device, purchasing shares in the company at times when the share price is comparatively low and warehousing them for future use.

Private companies may shy away from implementing employee share plans, believing that it would prove very difficult for employees to cash in their shares. These companies can use an EBT to create an internal market for shares, enabling them to provide an additional benefit for employees. The EBT can also be used to buy shares from departing shareholders.

When a company introduces a Share Incentive Plan (a ‘SIP’) for the benefit of eligible employees, it must ensure that all shares acquired under the SIP be held in an onshore (UK based) trust on behalf of the participants until they are released.

Typically an EBT is funded by the company (or a subsidiary) by way of contributions or a loan.

The Trustees of an EBT will act in accordance with a Trust deed, receiving funding, investing funds in the company’s shares, and distributing the shares to the employee beneficiaries at the relevant times.

MM & K can assist your company with setting up an EBT, with the provision of an appropriate Trust deed as well as advice and assistance on trustee services.

Contact our Employee Trust Team now to hear more about the benefits of introducing an Employee Trust.