Employee ownership trusts
Produced in partnership with Stephen Woodhouse
Employee ownership trusts

The following Share Incentives practice note produced in partnership with Stephen Woodhouse provides comprehensive and up to date legal information covering:

  • Employee ownership trusts
  • What is an employee ownership trust?
  • What tax reliefs can an EOT provide?
  • Conditions to be an EOT
  • The trading requirement
  • The all-employee benefit requirement
  • The equality requirement
  • The controlling interest requirement
  • Can existing employee benefit trusts be used as EOTs?
  • Capital Gains Tax (CGT) relief
  • More...

What is an employee ownership trust?

An employee ownership trust (EOT) is a particular type of employee benefit trust (EBT) that meets certain statutory criteria. The concept of an EOT was introduced under the Finance Act 2014 (FA 2014), in conjunction with certain tax benefits that became available for companies that are owned by an EOT and for individuals who dispose of shares to an EOT. If the statutory criteria are not satisfied in relation to the EOT then these tax reliefs will not be available. The tax reliefs were introduced by FA 2014, Sch 37 following an announcement in the Budget 2013 and a subsequent consultation.

For information on EBTs generally, see Practice Note: What is an employee benefit trust?

What tax reliefs can an EOT provide?

Three tax reliefs were legislated for in line with a policy of encouraging the creation of employee-owned companies as an alternative to a trade sale or other loss of independence for a privately owned company or as a vehicle for a business transfer.

These reliefs are:

  1. an exemption from capital gains tax (CGT) on certain disposals of shares to an EOT

  2. limited relief from income tax on bonuses—up to £3,600 per year per individual paid by an employer company owned by an EOT, and

  3. relief from inheritance tax (IHT) on certain transfers into and from EOTs

This Practice Note sets out the

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