Employee ownership trusts (EOTs) can provide company shareholders with an exit strategy that does not involve an external buyer. The structure enables greater employee engagement and a succession plan that can accelerate growth and help foster an inclusive culture.
To sell to an EOT without any liability to capital gains tax, shareholders must dispose of a controlling interest of over 50% of the shares in a trading company or the ‘principal company’ of a trading group to a trust. The trust then holds the share capital of the company for the benefit of the company's employees.
Provided the qualifying conditions are met, no capital gains tax will be payable on the disposal of shares to the EOT by UK resident taxpayers. This will be of particular benefit to any owner otherwise subject to the full rate of capital gains tax, currently at 20%.
A company that is majority-owned by an EOT can pay annual, income tax-free bonus payments of up to £3,600 per employee.
The sale process should be comparatively simpler than a sale to a third-party purchaser, such as a trade buyer or a private equity fund. This process has lower transaction costs and fewer due diligence requirements, thus being faster and less costly than alternative exit strategies.
Our team provides advice on whether or not an EOT is the right structure for your business and suitable for your succession planning and growth. We also assist companies and shareholders with the implementation of a sale to an EOT.
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