An employee benefit trust (EBT) is a trust which is established for the benefit of current and former employees of the company which sets up the trust.
The trust can be established in the UK, but it is more common for the trust to be established offshore – typically in the Channel Islands – as this ensures that assets held within the EBT are not subject to UK capital gains tax.
For the trust to be properly established, a trustee must be appointed. Some companies choose to establish a subsidiary company to act as trustee of the trust, via the directors of that subsidiary. More commonly, however, an independent third-party trustee is appointed.
There are important statutory and tax exemptions which apply to employee benefit trusts, but their availability requires the persons who the trustee is empowered to benefit using trust assets to be limited to current and former employees, and their family members. EBTs can therefore only be used in connection with employees and not non-employees, such as consultants, advisers or non-executive directors.
One of the main purposes of an EBT is as a delivery mechanism of free shares to employees.
UK company law prohibits a company from issuing new shares to employees for less than the nominal value of a share. This company law requirement presents a problem for companies that grant nil-cost options or conditional share awards under their established share plans. If the company intends to satisfy those awards by...
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