Funding an employee benefit trust

The following Share Incentives practice note provides comprehensive and up to date legal information covering:

  • Funding an employee benefit trust
  • Practical aspects of funding an EBT
  • Financial assistance—the background
  • Financial assistance—the current position
  • Relevance of financial assistance to EBTs
  • Financial assistance—exemptions
  • Assistance for a larger purpose
  • Employees’ share scheme exemption
  • Share exchanges between employees
  • The employees’ share scheme exemption—ability for an EBT to qualify
  • More...

Funding an employee benefit trust

This Practice Note covers the following issues in relation to the funding of an employee benefit trust (EBT):

  1. practical aspects of funding an EBT

  2. financial assistance—the background

  3. financial assistance—the current position

  4. relevance of financial assistance to EBTs

  5. financial assistance—exemptions

  6. the employees’ shares scheme exemption

  7. consequences of non-compliance of the financial assistance provisions

  8. tax implications for close companies which fund EBTs, and

  9. corporation tax relief in respect of EBT funding

Practical aspects of funding an EBT

When an EBT is first set up, it needs to be provided with initial financing, as a trust cannot exist without initial trust assets. It is common for a nominal amount, for example £100, to be settled on the trustee in order to establish the EBT (for further details, see Practice Note: Setting up an EBT).

However, after the EBT has established, other funding can be provided. This may be by way of:

  1. voluntary contribution

  2. loan finance from the company or from a third party such as a bank (usually guaranteed by the company), or

  3. contributions from others such as shareholders (care will be required to ensure that such shareholders do not have a tax liability as a result)

A key benefit of providing loan funding is that, in the event that there are excess funds in the EBT (for example because share awards have not vested to the

Popular documents