Webinar takeaways – Employee Ownership Trusts

Employee Ownership Trusts (EOTs) were introduced in 2014 as an alternative exit strategy for business owners. In her presentation, Angela Ferguson from Saffery Champness compared the use of EOTS to a sale to third parties and Management Buyouts, from a tax as well as commercial perspective. She went on to discuss the benefits, drawbacks and tax implications of EOTs, which we will summarise briefly here.

Benefits and downsides

• This is a low risk exit strategy – sellers do not need to find external investors, they can remain involved in the business and the business culture can be unaffected;
• Non tax based advantages include higher employee engagement, better attraction and retention of talent and higher productivity
• No CGT is chargeable on the vendors on sale of shares to EOT in the tax year in which the disposal takes place.
• Bonuses (up to £3,600) can be paid to employees without income tax, though NIC will still be due.
• Profits can be gifted to the EOT without IHT implications.

Qualifying conditions

For an employee ownership trust to qualify for the beneficial tax terms,

• The company must be trading;
• The same terms must be available to all employees (though some flexibility can be built in for those with longer service periods for example);
• The EOT can be a minor shareholder but must it have a controlling interest (over 50%) by the of the tax year in which the sale takes place.

If you have any questions on this topic, please feel free to contact Angela Ferguson (angela.ferguson@saffery.com)

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