Reminder: Don’t forget to claim tax relief on distributions made to employee ownership trust for the 2024/25 tax year

Before 30 October 2024, HMRC generally accepted that certain payments made by a company to the trustees of an employee ownership trust (EOT) were not taxable distributions, a position commonly confirmed through a nonstatutory clearance. However, HMRC has since clarified that these payments are, in fact, distributions for tax purposes, and therefore subject to income tax unless trustees make a claim for the new relief introduced by the Finance Act 2025.

HMRC has also confirmed that, where an EOT was established before 30 October 2024 and a nonstatutory clearance was obtained confirming that relevant payments were not taxable, those clearances will continue to be honoured. Accordingly, trustees of such EOTs receiving distributions after 30 October 2024 do not need to make a claim for the distributions to remain nontaxable. However, for all other cases, trustees must make a claim for the new relief.

This new relief applies to distributions made on or after 30 October 2024. Trustees receiving such payments to meet qualifying trustee acquisition costs must now submit a formal claim to ensure the distributions are not treated as taxable.

Qualifying trustee acquisition costs include:

• consideration for the acquisition of the shares
• sums borrowed to fund the acquisition of the shares
• interest payable on deferred consideration or sums borrowed to fund the acquisition
• stamp duty
• valuation expenses
• other expenses directly connected with the acquisition.

Any part of a distribution that is not applied towards these qualifying costs does not qualify for relief and will remain taxable.

Where an EOT still has outstanding consideration to pay, trustees will be required to make a claim for relief for each tax year in which deferred consideration payments are made, continuing until the purchase price has been fully settled.

Claims must be submitted to HMRC within four years of the end of the relevant tax year and may be made either:

• through the EOT’s tax return, or
• by submitting a standalone written claim to HMRC.

For the 2024/25 tax year, the filing deadline for the trust tax return is 31 January 2026. Trustees intending to claim relief through the return will need to submit the return and claim by the end of this month. Alternatively, a standalone written claim may be submitted to HMRC any time up to 5 April 2029.

If you would like support with claiming the relief for your EOT, please get in touch.