The opinions highlight increased scrutiny of EBT arrangements used in family wealth planning and reinforce HMRC’s approach to challenging contrived steps aimed at reducing inheritance tax liabilities.
UK’s His Majesty’s Revenue and Customs (HMRC) has published two reports from the General Anti-Avoidance Rule (GAAR) Advisory Panel concluding that arrangements designed to reduce Inheritance Tax (IHT) through the use of employee benefit trusts (EBTs) were unreasonable and therefore fall within the scope of GAAR.
The opinions, published on 22 July 2026, relate to two separate inheritance tax planning arrangements that sought to rely on the Inheritance Tax Act 1984 (IHTA 1984) exemptions for gifts of shares to employee trusts under sections 28 and 86. In both cases, the independent panel concluded that the arrangements did not represent reasonable courses of action under the relevant tax provisions.
A separate GAAR Advisory Panel opinion dated 30 January 2026, published on 22 July 2026, also addressed arrangements involving reducing the value of an estate for Inheritance Tax and avoiding Inheritance Tax on a lifetime transfer by acquiring shares in a company and gifting those shares to an employee trust. The panel concluded that both entering into and carrying out such tax arrangements were not reasonable courses of action.
Family investment company arrangement
In the first case, the deceased was the sole employee and director of a family investment company and owned almost all of its shares.
A few days before the individual’s death, advisers implemented a series of steps that included establishing an employee benefit trust, transferring the deceased’s shares to the trust, appointing family members as directors and employees, and placing the company’s shares under the trust. According to the GAAR Advisory Panel, the company had no employees other than the deceased when the trust was created, and its business primarily consisted of holding property investments, cash and financial assets.
Although the shares were formally transferred to an employee benefit trust, the panel concluded that the arrangement did not reflect the normal transfer of a business for the benefit of a broad workforce. It found there was no evidence that the deceased intended to expand the workforce or benefit future non-family employees, while family members retained influence over the company and the trust through directorships, shareholdings and provisions in the trust deed.
The panel said the arrangements were inconsistent with the principles and policy objectives of section 28 of the Inheritance Tax Act 1984, which was intended to encourage genuine employee trusts rather than structures allowing family wealth to remain under family influence while obtaining an Inheritance Tax exemption.
Property investment business arrangement
The second opinion concerned a property investment business that had been operated by the deceased as a sole trader.
Before the individual’s death, a partnership was formed with the deceased’s two sons, after which the business was incorporated and the deceased gifted company shares to an employee benefit trust.
The GAAR Advisory Panel concluded that the planning was “not consistent with the principles and objectives for exemption under section 28” of the Inheritance Tax Act 1984, and therefore did not amount to a reasonable course of action under the relevant tax provisions.
Panel’s conclusions
In its detailed opinion, the GAAR Advisory Panel said the arrangements involved contrived or abnormal steps designed to sidestep the restrictions on the section 28 exemption and reduce the intended Inheritance Tax charge on the deceased’s estate. It also noted that while future employees could theoretically benefit from the trust, there was no evidence of business expansion or any intention to benefit non-family employees. The panel therefore concluded that both entering into and carrying out the arrangements were not reasonable courses of action in relation to the relevant tax provisions.
GAAR framework
The General Anti-Avoidance Rule (GAAR) is contained in the Finance Act 2013 for income tax and the National Insurance Contributions Act 2014 for national insurance liabilities. It is intended to counter abusive tax avoidance, while the independent GAAR Advisory Panel provides opinions on cases where HMRC considers that GAAR may apply.
