Employee Ownership Trusts – A new route for selling your business

Tax, Employment Tax, Share Incentives, Human Capital Advisory

The Government brought in legislation in 2014 allowing a business owner to give or sell their business to an employee trust completely free of capital gains tax and inheritance tax. Many business owners are considering taking advantage of this tax relief.

Employee trusts have been used by employers for a number of purposes to benefit their employees. Such trusts (employee benefit trusts being one example) have been around for a number of years. The UK tax legislation has always given employee trusts tax advantages where they are implemented to genuinely benefit a company’s wider employee base.

In 2014, in pursuit of a Government initiative, legislation was introduced to incentivise “indirect” employee ownership of companies through new qualifying trusts – Employee Ownership Trusts or EOTs (indirect employee ownership, by the way, is the ownership of the company via a trust benefiting employees as opposed to the company’s shares being owned directly by employees). Initially there was scepticism about the likelihood that these new reliefs would be taken up. It all seemed a little too altruistic – “am I going to give my company away to my employees? Probably not”. But business owners have started to realise the advantages of EOTs when it comes to selling their businesses.

It started to become clear that the tax reliefs that were given by the new legislation were available not just for gifts of businesses to an EOT, but for sales of businesses to EOTs at full value. So not only does an EOT allow a business owner to pass on their business to their employees as a legacy of future employment, it also (and this is what is attracting people) allows the business owner to
sell their business to a newly set-up EOT for full value completely free of Capital Gains Tax (CGT) and Inheritance Tax (IHT). That’s 0% CGT, no tax whatsoever

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Tax, Employment Tax, Share Incentives, Human Capital Advisory