An employee ownership trust (EOT) is an attractive succession route for business owners.
Introduced as new legislation in the 2014 Finance Act, an EOT enables the shareholders of a trading company or group to sell a controlling shareholding to an EOT at a zero per cent rate of capital gains tax (CGT).
An EOT involves a Trust holding shares in a trading company or group for the benefit of all eligible employees. Trustees of the Trust are appointed to act in the best interest of its beneficiaries, being the employees of the underlying business.
As a result, the EOT model promotes long term employee ownership, facilitating the retention of a strong, positive culture within an organisation, protection of local jobs and enhanced employee engagement in the decisions and success of an organisation.
Following the introduction of EOTs the majority of shareholders of owner managed businesses that were looking to sell found traditional routes more desirable, such as sale to a trade party, private equity or their core management team as part of a management buyout. This was largely due to the generous 10 per cent CGT rate that applied to gains of up to £10 million, which qualified for Business Asset Disposal Relief (BADR) (known at the time as Entrepreneurs' Relief), alongside the 'unknown' of what selling to an EOT meant.
In more recent times, due to a combination of the curtailment of BADR and the increasing activity in employee ownership transactions, many businesses owners are now more aware and engaged in the idea of selling to an EOT.