Since the major changes to Entrepreneurs’ relief in the March Budget, and the changes in the economic climate from COVID-19, we are seeing more and more business owners looking to explore the potential of setting up an Employee Ownership Trust as a favourable exit strategy solution.
EOT’s are particularly beneficial to companies where the exiting shareholder wants to take a step back and exit, but the business does not necessarily have a natural successor in place to take over and continue their legacy.
Favourable tax position of Employee Ownership Trusts
Implementing an EOT is fairly complex in nature and may not be suitable for all businesses, but both existing shareholders and employees could benefit significantly from the favourable tax treatment an EOT provides, as well as other longer term financial and non-financial benefits for all beneficiaries of the EOT.
For example, if structured correctly, a sale of a trading company to an EOT could be tax free for the seller, saving a significant amount of CGT. In addition, employees of an EOT owned company can benefit from annual bonuses of up to £3,600 tax free.
There are numerous conditions that must be met for an EOT sale to be tax efficient, and the transaction is not right for all.
We recently held a webinar covering the topic of Successfully selling a business during a pandemic, containing more information on exactly how an Employee Ownership Trust works. To access the recording, please follow the link.
To learn more about Employee Ownership Trusts, please get in touch with one of the tax team. We have lots of experience advising clients in this area and work closely with our in-house Corporate Finance Team to ensure company transactions are completed in the most appropriate and tax efficient manner. If you wish to discuss this with us, please get in touch with a member of our team.
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