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HMRC internal manual

Trusts, Settlements and Estates Manual

Trusts for particular purposes: employment-related trusts - loan schemes for employees and directors to acquire shares

A company cannot normally lend money to buy its own shares or those of its holding company. However it may make loans to schemes that are for the purchase of shares by employees of the company.

The company may pay the loans to trustees who pass them on to the employees, etc. This often happens if there are salaried directors in the scheme.

The trustees receive interest on the employee loans from the employees. The scheme often requires the trustees to pass it on to the company. If this happens the trustees are not chargeable to tax on the interest (ITA/S479). Occasionally trustees may have to pay a smaller fixed amount to the company. If so, the trustees are not chargeable to tax on the fixed amount.