Employee Ownership Trusts (EOTs) represent a governmental effort to encourage employee ownership, providing business proprietors with the chance to transfer their shares to a trust owned by employees without incurring capital gains tax. Instead of employees holding shares directly, a dominant stake in the company is assigned to a trust that encompasses all employees, with the primary aim of benefiting the workforce.

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Short Term Benifits of a Employee Ownership Trusts

  • Enables an exit strategy in the absence of a clear external buyer. Offers a swift and efficient departure pathway for shareholders.
  • Permits a tax-exempt transfer for UK individual shareholders.
  • Allows the original owner to maintain some level of involvement (up to 49%).
  • Continues to make share capital accessible for motivating management and essential employees.

Long term benifits of an Employee Ownership Trusts

  • Allinging objectives of stakeholders and workers.
  • Enhances employee loyalty and morale. Stimulates creativity across all tiers.
  • Boosts company efficiency by advancing the growth of stakeholder interests.
  • Employee ownership fosters worker involvement.

Tax benifits of an Employee Ownership Trusts

  • A primary benefit for the seller is the exemption from capital gains tax on share transfers to an Employee Ownership Trust (EOT), provided the EOT secures a majority stake in the company. This exemption is available to all sellers offloading shares to the EOT within the same fiscal year, including those holding minority interests who might not qualify for other tax reliefs such as business asset disposal relief (formerly known as entrepreneurs’ relief).
  • For employees of the company in question, a significant perk is the ability to receive tax-free bonuses up to £3,600 annually. While these bonuses are exempt from income tax, the company is required to cover National Insurance contributions, as the tax relief is considered to benefit the employees rather than the employer.
  • Additionally, transfers of shares into and out of the EOT may qualify for inheritance tax relief, enhancing the financial advantages of this arrangement.

HOW WE CAN HELP YOU THROUGH THE EOT PROCESS

Our team provides lead advisory services to business owners and management teams throughout the EOT process and supports clients through four critical areas.

  • Strategic review: We will advise on ensuring that an EOT is the best option for the company and outline the key considerations taking into account potential alternative structures
  • Tax structuring & EOT Design: We work with all parties to ensure that the company  ensuring that the beneficial tax treatment will apply.
  • Company Valuations: We can conduct a thorough and equitable assessment of the company’s value. This approach guarantees the avoidance of any extra tax liabilities due to the shares being sold for more than their worth, and ensures that the trustees can fulfill their duties with confidence, knowing they are adhering to their responsibilities
  • Preparing for Post-MBO Responsibilities: We are committed to ensuring that all involved parties are ready for the responsibilities and changes that follow the MBO, especially those arising from external funding. Our goal is to prepare everyone for a successful transition and operation in the post-MBO environment.
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