What is an Employee Ownership Trust?

An EOT is a special type of employee benefit trust set up to hold a controlling stake in a company on behalf of its employees. The trust holds shares for the benefit of employees, ensuring that ownership and control are maintained collectively. Instead of selling to a trade buyer or private equity, you sell to a trust that safeguards the business for the long term.

Employee ownership trusts (EOTs) were established as a government initiative in the UK to promote employee ownership and facilitate tax-efficient business transfers. The EOT structure is distinct from other employee ownership structures and business models, such as direct share ownership or other forms of employee benefit trusts. EOTs are a popular employee ownership structure and business model for succession planning, offering significant tax advantages and supporting long-term business stability.

Busting the Myths of EOTs

• Gift vs. Sale – An EOT is a commercial sale at full market value, not a gift. Sellers are repaid through vendor loans and/or external finance. Not all shareholders need to sell shares to the EOT; the trust only needs to acquire a controlling interest.
• Too Complex? – While the legal qualifying conditions are important, the focus is on building a strong, team-driven business for the future.
• “I Don’t Have a Senior Team” – You don’t need a fully developed team in place from day one. Many sellers stay on for a period to train and mentor.
• EOT vs. MBO – Unlike management buyouts, managers don’t need to personally guarantee funding, reducing risk and improving alignment.

Why Choose an EOT?

• 0% Capital Gains Tax – Government-approved relief for sellers, with additional tax advantages such as potential relief from inheritance tax and income tax on qualifying EOT transactions.
• Full Value Realised – Achieve a commercial valuation, not a discounted one.
• Succession Planning – Protect your business legacy, maintain a positive business culture, and reward employees.
• Flexibility – Stay involved during transition and control the timing of your exit.
• Employee Engagement – EOT companies consistently outperform:
• +4.6% sales growth
• +25.5% operating profit
• +4.5% productivity gains (EO Association data)
• Pay Tax Free Bonuses – EOTs allow companies to pay tax free bonuses to employees, providing a significant benefit.
• Business Asset Disposal Relief Alternative – EOTs offer a tax-efficient exit strategy that can be an alternative to business asset disposal relief (BADR) for business owners.

Overall, choosing an EOT provides substantial benefit to both the company and its employees.

Our Approach – Sale with Confidence

We specialise in helping business owners transition successfully to Employee Ownership. Our consultants provide:

• Full EOT Viability Assessment – Is it right for you?
• HMRC Clearance – Ensuring 0% CGT relief applies to your sale, and confirming that certain conditions and key conditions are met for tax relief.
• Valuation & Finance Options – Structuring vendor loans and external funding.
• Legal Documentation – Keeping technicalities simple and clear, with compliance to the latest Finance Act and relevant tax year requirements.
• Trustee Introductions – Reputable professional trustees to oversee governance, clarifying the role of EOT trustees in company oversight and distinction from the management team.
• Communication & Training – Helping you align management and employees, supporting the management team, and establishing an employees council to enhance employee engagement and governance.