EOT route offers wins to all parties

By Steve Bell, Pierce

18 Dec 2023

Steve Bell at Pierce

In the current uncertain economic environment we are seeing many clients considering how they can secure their financial legacy from their business.

As an alternative to a trade sale or a management buy out, we are seeing many owners looking towards the Employee Ownership Trust (EOT) model as a way of securing the continued independence of the business.

Introduced in the Finance Act 2014 the EOT provides a structure by which employees can collectively have a controlling interest in the business. The government has actively encouraged this business model by allowing vendors to sell with full Capital Gains Tax (CGT) relief on the sale proceeds.

The sale to an EOT provides greater certainty in respect of the transaction as the vendors control the major aspects of the transaction. There is no need to engage with third party buyers or funders which can be a distracting process.

Alongside the beneficial tax treatment for the vendors, the company can also offer tax efficient share schemes if there are any particular employees that are seen to be key to the development of the business, alongside paying tax free bonuses on an annual basis to eligible employees.

Whilst the sale to an EOT is not appropriate for every circumstance, the preferential tax treatment for vendors and employees means that we are seeing more clients actively engage in this process to see whether or not it is appropriate for them.

The Pierce corporate finance and tax team has extensive experience of guiding our clients through the maze of EOT and can provide guidance as to whether this route is appropriate for an individual vendor.

Enjoyed this? Read more from Steve Bell, Pierce

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