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Inheritance Tax 'Employee Trusts' With No Employees Fail The Abuse Test

ended 24. July 2026

The employee-trust exemption is one of the most generous in inheritance tax: gift shares in your company to a trust for your workforce and section 28 of the Inheritance Tax Act 1984 takes the whole value out of the tax. It exists to reward genuine employee ownership. Yet on 22 July 2026 HMRC published two anonymised opinions of the GAAR Advisory Panel, the independent panel that advises on the general anti-abuse rule, each issued on 30 January 2026 and each concluding that arrangements leaning on this exemption were “not a reasonable course of action in relation to the relevant tax provisions”.

In the lead case, a property investor's business was incorporated shortly before his death in 2014, at the age of 79, and a holding of 2,200,000 £1 ordinary shares was gifted to the trustee of a new ‘employee benefit trust’ for nil consideration, at a time when, on the published opinion's account, the company had “two directors, both family members, and no employees”. The panel went back to the 1976 policy notes behind the exemption, which meant it for “genuine” employee trusts, not “artificial employee trusts” that are “mere media for transferring the settlor's wealth to his children”. This is not new ground: the opinion itself cites previous panel opinions on arrangements using this exemption from 2020 and 2024, and the 2024 opinion's conclusion reads word for word the same. A companion opinion published the same day covers the variant of gifting shares in an existing company. Same conclusion.

The catch is who carries the failure. The panel is advisory, not a court, but its opinion clears HMRC's way to counteract the tax advantage, and the opinions are published precisely so taxpayers can recognise abusive arrangements before buying one. Anyone entering a scheme like this today also risks a penalty of 60 per cent of the counteracted tax advantage, in force for arrangements entered into since 15 September 2016. With most unused pension funds due to come within inheritance tax from 6 April 2027, more families are being pitched packaged schemes promising to make the tax disappear, and when a scheme fails, the counteraction and any penalty land on the family or the estate, not the promoter who sold it.

  1. The panel keeps reaching the same conclusion on employee-trust schemes. Is this scheme family finally finished, or will promoters keep repackaging it for as long as families keep paying?
  2. When one of these schemes is counteracted, the tax bill and any penalty fall on the family or the estate while the promoter keeps the fee. Is that fair, and who is most at risk of being sold one?
  3. What should families worried about a rising inheritance tax bill do instead, and how do you tell genuine planning from a packaged scheme? Do you have a client who has been pitched, or bought, an arrangement like this? If so, please give as much colour and detail as possible.

3 responses from the Newspage community

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Editor
Harvey DhillonVerified
Founder & CEO at Zmartly
Gift your company shares to a real trust for your staff and section 28 of the Inheritance Tax Act 1984 takes the whole value out of tax. It rewards genuine employee ownership. A trust with two directors and no staff is not that: it is family wealth wearing a workforce badge. The government's anti-abuse panel keeps saying so, in opinion after opinion, two more just this week. Is it fair? No. The seller keeps the fee; the family keeps the bill, plus a penalty of 60 per cent of the tax they tried to save on any scheme bought since 2016. And it is not finished: close one down and the same sellers file off the name and sell the next. Most at risk is a retired couple told their pension now faces Inheritance Tax from April 2027, then sold a cure. The honest fixes are dull: use your allowances, give from spare income, pay for advice by the hour. If you cannot explain a scheme to HMRC without wincing, it is a bill with a delay on it.
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Kate UnderwoodVerified
Founder & Chief People Strategist at Kate Underwood HR and Training
An "employee benefit trust" with no employees? Come on. The clue's in the name. Two family directors, not a single member of staff, and a dying man's shares quietly parked in a trust that was never really about the workforce. HMRC's panel took one look and said what we're all thinking. This wasn't ownership, it was the kids' inheritance with a tax label stuck on it. And here's the bit that gets me. When one of these things falls over, it's the family left holding the bill, plus a 60 per cent penalty on top. The bloke who sold it? Long gone, fee in pocket, on to the next one. Real employee ownership is a lovely thing and I'm all for it. But a trust with no employees isn't clever planning. It's a tax dodge in a nice suit. If someone promises to make the taxman disappear, just ask them one thing. When it goes wrong, who's left paying? Because it won't be them.
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Nouran MoustafaVerified
Practice Principal & IFA at Roxton Wealth
These schemes are not clever planning; they are tax roulette dressed up in legal paperwork. An “employee” trust with no employees fails the common-sense test before HMRC even reaches the technical one. The position is especially ugly because the family can inherit the tax, interest and potentially a 60% penalty, while the promoter may already have banked the fee. Those most at risk are asset-rich families frightened by a projected bill and sold urgency instead of advice.

Genuine inheritance tax planning starts with the family, not a product: map the estate, test cashflow, update wills and powers of attorney, consider affordable lifetime gifting, life cover in trust and available reliefs only where the facts support them. Warning signs include promises that tax will “disappear”, artificial companies or trusts with no commercial purpose, secrecy, pressure to act quickly and advice driven by one packaged solution. If the structure makes no sense without the tax saving, walk away.