Employee Ownership Trusts

This year sees the 10th anniversary of the introduction of the Employee Ownership Trust (EOTs). In this article Stuart Sheldrick, Director in our Corporate Finance team, reflects on the key advantages for business owners.

Employee Ownership Trusts (EOTs) were first introduced in 2014, designed to promote employee ownership of a business, where it is believed that employee engagement encourages better performance and productivity in a company.

Due to a combination of challenging M&A markets brought about by economic instability, high interest rates and anticipated changes in Capital Gains Tax, the number of EOTs continue with a steady increase, with now over 1,400 in existence.

How do you set up an Employee Ownership Trust (EOTs)?

To set up an EOT, there are a number of qualifying conditions, three of the key criteria being:

1. the company whose shares are transferred must be a trading company or part of a trading group
2. the EOT must be for the benefit of all eligible employees
3. the trustees must retain at least 51% interest in the company

The key advantages of selling to an EOT are that the seller has no Capital Gains Tax or Inheritance liabilities on the disposal of their shares, at a full market value. It will enable employees to indirectly buy the company without having to use their own funds and potentially benefit from an annual £3,600 tax free bonus. The Directors can also remain in post receiving a commercial salary.

If you would like to find out more about Employee Ownership Trust (EOTs), and if they could be an option for the succession of your business please contact us on 020 8221 8282 or email stuart.sheldrick@lbgroupltd.com