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- Employee Ownership Trusts
TALK TO LODDERS’ LEGAL EXPERTS
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If you would like help or advice on setting up an Employee Ownership Trust, Lodders’ business services team offers legal clarity, delivered with human understanding.
Legal Director
Leanne Lawrence
How does an EOT work and what are the benefits?
An Employee Ownership Trust (EOT) is a specific type of employee benefit trust, which is created to enable a trading company to become owned by its employees
The existing owners of the company set up the EOT, with a newly formed trustee company typically handling the purchase of shares on behalf of the trust. Employees, former employees, and select relatives and dependents can benefit from the EOT, although they don’t directly own the shares. These are held by a trustee company, with employees designated as beneficiaries. Meeting certain requirements is necessary for both owners and employees to take advantage of the EOT. There are several qualifying conditions that must be met for this structure to work and for the tax relief to be available to the sellers – and these conditions were enhanced in the November Budget. Breaching the qualifying conditions can have consequences for both the seller and the EOT so it’s really important to take specialist legal advice.
Key advantages of an EOT:
- Employees are invested in making the company a success for the future, leading to better engagement and higher staff retention.
- Employees can be paid tax-free bonuses of up to £3,600 each per year, subject to national insurance contributions.
- There is no Capital Gains Tax on the transfer of shares to the EOT, as long as the EOT acquires a controlling interest in the trading company and subject to qualifying conditions.
- Shareholders have an exit route where there is no third-party purchaser.
- Owners can also map out their path to retirement, without needing to fully exit immediately.
- Shareholders can sell their shares at market value, with greater certainty of completion as they control the major aspects of the transaction.
