11.3.1 Loan funding

There is an attraction to loan funding an employee trust, in that, if the EBT is left holding unallocated shares at the time of an exit, the EBT would be able to use part of all of its proceeds on disposing of its remaining shares to repay the indebtedness, which would be of benefit to the shareholders.

The difficulty with such an approach would be that the EBT, as a shareholder, would be a participator in the lender company. This would mean that the company would be obliged to account to HMRC for corporation tax under CTA 2010, s. 455 on the value of the loan. This tax charge would be repayable to the lender company when and if the loan was repaid by the EBT trustees.

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