Employee Ownership Trusts & Inheritance Tax (IHT)

1 April 2021 Andy Ryder View all News

If you are considering selling your business to your employees through an Employee Ownership Trust, you may already be aware of the generous tax benefits.

When the UK government introduced Employee Ownership Trusts in 2014, they wanted to give both exiting shareholders, as well as the business itself, a real tangible incentive to make the transition to employee ownership.

These incentives include exemption from Capital Gains Tax for the selling shareholder, as well as tax free annual bonuses of up to £3,600 for employees. But there is also a potential IHT benefit of the EOT exit route.

EOTs can have Inheritance Tax (IHT) benefits

The sale of shares to a trust at less than market value can result in immediate IHT liabilities arising for the seller; however, there is an exemption from these liabilities where the sale of shares at undervalue is to a qualifying EOT.

This means inheritance tax is one less thing to worry about when selling your business to an EOT.

In addition, as the EOT is for the benefit of all employees, the EOT is generally excluded from the 10-year IHT charge, as well as IHT exit charges, that can arise on certain trust arrangements.  

When implementing any trust arrangement, it is important to seek advice to ensure that no undesirable tax consequences arise.

You can find out more about the tax benefits of selling to an Employee Ownership Trust in our blog, and by watching our video below:


Talk to Shorts about Employee Ownership Trusts

The Shorts team includes dedicated specialists in all things EOT. So, whether you are a business owner looking for a tax-efficient exit strategy, or you have already decided you wish to sell to your employees, but require expert guidance on how to do it, Shorts is here to help. Get in touch with our team today.

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