Employee Ownership Trusts

What is an EOT and what are the benefits?
An Employee Ownership Trust (EOTs) is a type of employee benefit trust designed to enable shareholders of trading companies to transfer controlling interests in their companies to the employees.

EOTs are an attractive alternative to traditional exit strategies such as external sales or management buy-outs. Many business owners prefer to leave the business in the hands of their employees – when employees have a stake in the business you will often see greater employee engagement and improved recruitment and retention rates.

Tax benefits of Employee Ownership Trusts
There are tax advantages for both transferring shareholders and eligible employees.

Shareholders
Shareholders of trading companies, who wish to share ownership of their companies with their employees, can sell some or all of their shares to employee ownership trusts (EOTs) without incurring a capital gains tax (CGT) liability. 

This will be of particular interest to shareholders who may not benefit from business asset disposal relief (previously called entrepreneurs’ relief) or investors’ relief, who would otherwise pay CGT on transfers of their shares at 20%.

There should also usually be 100% relief from inheritance tax which would otherwise apply to transfers of shares.

Employees
The company may pay bonuses of up to £3,600 to each eligible employee per year, free from income tax.

Find out more
Download our factsheet or watch our short video for further information on Employee Ownership Trusts and the qualifying conditions involved.