EIM26110 - The benefits code: beneficial loans: meaning of making a loan: loan made by third party; employee benefit trust

Section 173(2)(b) ITEPA 2003

Making a loan includes:

• arranging a loan and
• guaranteeing a loan and
• in any way facilitating a loan and
• taking over a loan from another person.

Loan made by a third party – employee benefit trust

It is not uncommon for a third party, such as an employee benefit trust (EBT), to make a loan to a beneficiary who is also an employee of the employer which is associated with the EBT. It is sometimes suggested that the loan is not an “employment-related loan” ( EIM26113) because the definition of that term does not include a loan provided by a third party.

Whilst it is true that the definition includes no reference to a third party loan provider, HMRC does not accept that the loan is not an employment-related loan. The definition of “employment-related loan” includes a loan made by an employee’s employer. As “making” a loan includes “in any way facilitating” a loan, if the employer provides the money to fund the EBT, the employer is regarded as making the loan.

Consequently for the purposes of the loan benefit rules, the EBT is ignored and the loan is treated as made directly by the employer to the employee. It follows that the loan is an employment-related loan.