The EOT rules only apply to a person other than a company who disposes of ordinary share capital to an EOT, so usually individual or trust shareholders.

As with most beneficial tax rules or reliefs, a number of conditions must be met by a taxpayer to access the preferential tax treatment. The ability to sell shares to an EOT is no different, as there are a number of CGT qualifying conditions to be met:

• The trading requirement - The company or group being sold must qualify as a trading company or group for tax purposes.
• The controlling interest requirement - The EOT must obtain a controlling interest, broadly at least 51 per cent of the ordinary share capital or voting rights.
• The all-employee benefit (equality) requirement - The shares acquired by the EOT must be held for the benefit of all eligible employees on the same terms. Some employees will be ineligible beneficiaries, broadly those that have held at least a five per cent shareholding in the company in the 10 years prior to the EOT transaction.
• The limited participation requirement - The vendor shareholders can't constitute more than 40 per cent of the workforce.

Prior to the implementation of an EOT structure, it is highly recommended that advanced clearance is sought from HMRC. In addition, the trustees and directors will need to ensure they understand the qualifying conditions in order to avoid any post-transaction disqualifying events which could have serious tax consequences for both the vendors and the EOT itself.