Lead Forencsices

What is an Employee Ownership Trust? 

An Employee Ownership Trust (EOT) allows business owners to sell their company to a trust which is held for the benefit of the company’s employees. By selling your business to an EOT, you can benefit from capital gains tax (CGT) relief, while also providing employees with a stake in the company, securing its long-term future.

An EOT is a special form of employee benefit trust which holds a controlling stake in a trading company on behalf of all its employees. EOT’s are sometimes seen as a way of extracting profits tax-free, but while that may be possible, care should be taken as there are pitfalls and significant conditions must be met.

Key Benefits of Selling to an EOT

Selling your company to an EOT provides substantial financial and operational benefits:

Capital Gains Tax Exemption
One of the most attractive benefits of selling to an EOT is the potential for exemption from capital gains tax (CGT) on the sale. This means you could sell your business without paying any CGT on the proceeds, providing a tax-efficient way to exit your company.

Attract and Retain Talent
With ownership shared amongst the employees, an EOT provides greater incentives for the workforce. This can lead to increased employee engagement, productivity, and loyalty, helping you retain key talent and attract new employees who are motivated by ownership.

Maintain Company Legacy
Selling to an EOT ensures that the future of the company remains in the hands of those who are most invested in its success—your employees. Unlike selling to a third party, where the company’s culture and values may be compromised, an EOT allows you to protect your legacy and ensure its continuity.

Long-Term Sustainability
An EOT aligns the interests of the employees with the success of the business. The shared ownership model encourages employees to focus on the company’s long-term growth and profitability, creating a more sustainable business model.

 

What are the tax advantages?

When a controlling interest in a company (or parent company of a trading group) is sold to an EOT, the seller could have no capital gains tax (CGT) on the disposal, as it is deemed to be made at no gain / no loss. This is better than the minimum 10% rate of CGT available for sale on the open market.

Certain bonuses of up to £3,600 each per tax year, which are paid to all employees, are exempt from income tax (but are not exempt from National Insurance Contributions). As this is not a dividend it can be paid when there are no profits/distributable reserves in the company.

There are no inheritance tax charges on the transfers into or out of the trust, and the trust assets should be outside the scope of the relevant property regime.

 

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Why use an EOT?

 

What are the main qualifying conditions?

 

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How it works

Setting up an EOT involves a straightforward process:

Free Phone Consultation – We will assess your business and guide you through the suitability of an EOT based on your long-term goals.

Structuring the Sale – Our tax experts will structure the sale of your company to the EOT, ensuring you take full advantage of the available tax reliefs.

Ongoing Support – Once the sale is completed, we provide ongoing support to ensure the trust is managed effectively and continues to provide benefits to both the business and its employees.

 

Why choose Tax Innovations?

At Tax Innovations, we specialise in helping business owners navigate the complex tax and financial landscape of selling to an EOT. With our expert guidance, you can be confident that the sale of your business is structured in the most tax-efficient way while maintaining the integrity
and the future of your company.

Expert Guidance: Our team has extensive experience in setting up EOTs and guiding business owners through the sale process.

Tailored Solutions: We work closely with you to create a bespoke plan that aligns with your financial goals and ensures the long-term success of the business.

Complete Compliance: We ensure that all aspects of the EOT are compliant with HMRC regulations, giving you peace of mind throughout the process.

With the Government known to be looking at the low rates of CGT available in the UK, having already reduced the lifetime limit for Entrepreneur’s Relief, disposals to Employee Ownership Trusts have never looked better. Tax Innovations can help to guide you past the potential pitfalls
of selling your business to an EOT.

 

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