One key concern was the proposed treatment of payments made to EOT trustees for the “acquisition costs” (i.e. costs of purchase) as distributions which a tax exemption must be sought for by trustees, replacing previous practice of non-statutory clearances being sought to ensure the contribution is not taxable.
The initial draft contained a narrow definition of “acquisition costs”, potentially exposing EOTs to unintended and unfair tax liabilities.
Following sustained engagement, the government amended the Finance Bill to broaden the scope of acquisition costs. These costs now include:
- Borrowing costs incurred to fund the acquisition
- The cost of valuations (now a trustee responsibility under the Finance Bill)
- Any other reasonable expenses directly related to the acquisition
We welcome the government’s openness to dialogue and the positive changes made in response.
However, concerns remain with this measure, including an increased administrative burden (counter-intuitive to the measures intent of reducing the need for clearances) and that the costs covered by the exemption remain limited.
We also note that, while the above amendment was welcome, this has left many substantive issues in the legislation unaddressed.
We remain concerned with inconsistencies and ambiguities - for example, surrounding the wording of the trustee independence requirement and the vague requirement on trustees to take “all reasonable steps” to ensure that the consideration does not exceed market value.
While HMRC has acknowledged that guidance will accompany some of these legislative changes – particularly around valuations and claiming distribution relief – the timeline for this guidance remains uncertain.