Shipleys LLP

Chartered Accountants and Professional Business Advisers

Employee ownership trusts on the up?

The Finance Act 2014 introduced two tax reliefs designed to encourage and support the creation and growth of employee-owned companies.

Employee ownership trusts (EOTs) were introduced by the Government in 2014 to encourage employee-owned companies. Bearing in mind that from 6 April 2016, dividends will be taxed more heavily, EOTs may be of greater interest to business owners, especially those seeking to sell some of their shares.

Tax benefits

The sale of a controlling interest in a business to an EOT is entirely free of tax. This is especially attractive to owners who do not qualify for entrepreneurs’ relief, perhaps because they have already used up the lifetime allowance, and who might otherwise expect to pay 28% capital gains tax.

In addition, shares can be allocated to staff in a tax efficient manner, and genuine bonuses of up to £3,600 a year paid to employees of a company owned by an EOT can be exempt from income tax.

How do I get paid for my shares?

One hurdle is that the EOT will probably need to borrow money to fund the purchase from you. This can be a challenge but there are lenders out there who are familiar with these strategies, so if this is of interest, we can help.

If you have questions about establishing an EOT for your company, please contact us.

Specific advice should be obtained before taking action, or refraining from taking action, in relation to the above.

Need more help? Please contact us at advice@shipleys.com or +44 (0)20 7312 0000