CTM61525 - Close companies: loans to participators: employee benefit trusts

Where a close company makes a loan to an employee share scheme or an employee benefit trust, ICTA88/S419 may apply in two ways:

• If the trust itself holds shares in the company at the time of the loan, or if the individual trustees were all participators in the company, then ICTA88/S419 (1) will apply.
• If this is not the case, ICTA88/S419 (5) may apply when the trustees make payments to existing shareholders for their shares.

If, alternatively, the company makes loans to certain employees to buy shares from existing shareholders, ICTA88/S419 (1) will apply where the employee is already a shareholder, or ICTA88/S419 (5) may apply following the acquisition of the shares.

ICTA88/S420 may of course exempt the loans where the relevant conditions are met (see CTM61540).