Income Tax (Trading and Other Income) Act 2005 section 401ZA

Relief: distributions to trustees of employee-ownership trusts

Section 401ZA provides income tax relief where a company makes distributions to the trustees of an employee-ownership trust, allowing the trustees to deduct their acquisition costs from those distributions.

• Where a company's shares have been sold to an employee-ownership trust and the company pays a dividend or other distribution to the trustees to help fund the purchase, the trustees can claim relief by deducting their acquisition costs from the taxable distribution.
• The deduction cannot reduce the distribution below nil and the same costs cannot be used against more than one distribution.
• The disposal must meet the relief requirements set out in section 236H(4) of the Taxation of Chargeable Gains Act 1992, which defines qualifying disposals to employee-ownership trusts.
• Allowable acquisition costs include the purchase price of the shares, loan repayments, interest at a reasonable commercial rate, valuation fees, stamp duty, and other reasonable expenses directly connected with the acquisition — but not ongoing ownership costs.