What is an employee ownership trust?

Employee ownership trusts (EOTs) provide a way for privately owned companies in the UK to allow employees to become co-owners. Businesses that have gone down this route have seen improvements in staff motivation, customer satisfaction, stability and business performance. It also provides the most tax-efficient exit route currently available to business owners.

A sale by one or more shareholders of more than 50% of the ordinary share capital of a trading company or trading group to an appropriate employee ownership trust will qualify for maximum tax exemption. In this situation, the vendors will receive an exemption from all capital gains tax in the year in which the trust acquires a majority holding. This level of tax exemption is even more favourable than Entrepreneurs’ Relief.

Most importantly, there is no obligation on the part of the trustees to distribute shares, creating the possibility of a stable, long term trust holding.

The trust must operate for the benefit of all employees. You can limit the extent to which employees may benefit from the trust based on a qualifying period of employment, employee pay, length of service or hours worked. Employees can receive a cash bonus of up to £3,600 a year free of income tax (although they will have to pay national insurance contributions). For many employees, it is the opportunity to have a say in how the business is run that is the biggest benefit.

Financing the transaction can be a barrier for business owners wishing to set up an EOT. WMT will help you to determine the right type of funding to meet your goals and structure a tax efficient exit plans for the business owners. If external finance looks like the best option, we can negotiate funding with banks or specialist lenders on your behalf.

Do you still have questions? Get in touch with our business consulting team to find out more about how they can help you.

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