Changes to Employee Ownership Trusts

Helen Mather, Partner

Employee Ownership Trusts (EOTs) are used as an alternative structure for business succession and employee ownership. The concept of EOTs is that a company’s shares are owned by a trust on behalf of its employees, giving the employees a stake in the company’s success. EOTs can also be an appealing tax efficient tool for both business owners and employees. It is a way for business owners to exit strategically without paying capital gains tax and employees to receive their bonuses tax free up to £3,600 per year.

EOTs have undergone some recent changes following the Autumn 2024 budget. The key updates you should be aware of are:

     1. Trustee Independence:

The board of trustees is now required to have a majority of independent members who are not former owners or connected to the former owners. Former owners and connected persons are restricted from holding a controlling interest in the company post-sale to the EOT.

     2. UK Residency:

The trustees of the EOT must be UK resident at the time of the company’s sale to the EOT and for a period of four years following the sale.

     3. Extended Clawback Period:

The period during which HMRC can withdraw Capital Gains Tax relief from the sellers if there is a breach of certain requirements has been extended to the end of the fourth tax year following the year of disposal.

     4. Information Requirements:

Sellers claiming capital gains tax relief must now provide specific information, including the sale proceeds and the number of employees at the time of disposal.

If you would like any further information, please contact one of our Corporate Department.