If you are looking to plan your exit from your business, whether for retirement or to start your next venture, we know you want to achieve this as tax-efficiently as possible.
Employee Ownership Trusts (EOTs) are an increasingly popular way for business owners to exit while securing the future of their company and employees – not least because they offer significant tax savings over other exit strategies.
Understanding EOTs
As an exit strategy, an EOT is created when you sell a controlling interest (51 per cent of shares or more) to a trust set up for the benefit of your employees.
This trust buys and holds shares on behalf of the employees, who do not buy them directly, often financing the sale through future profits made by the business.
Updates in the 2024 Autumn Budget have clarified some points in the legislation around EOTs – meaning you must comply with certain rules to be eligible for Capital Gains Tax (CGT) relief.
The trustees must have paid fair market value for the business and there is now a more stringent ‘trustee independence requirement’, requiring at least half of trustees to be independent of the seller.
In practice, this means that you, or people connected to you, cannot make up more than 50 per cent of the trustees.
In practice, this means there must be at least one other trustee who is not connected to you, or you may be required to pay CGT up to four years after the sale, known as the ‘clawback’ period.
Are they tax-efficient?
EOTs offer several tax efficiencies over other forms of exit, such as a sale to a group or an independent buyer, including:
- CGT exemption – When you sell a controlling interest to an EOT, your gains are exempt from CGT if you meet certain requirements, allowing you to keep the full value of your shares.
- Inheritance Tax – Assets transferred into an EOT are excluded from your estate for Inheritance Tax purposes, making EOTs particularly handy for retirement.
- Income Tax benefits – EOTs are tax-efficient for employees too, offering tax-free bonus allowances of up to £3,600 per year.
Providing you abide by the latest regulations, EOTs can be a tax-efficient way of exiting your business.
Need advice on setting up an EOT? Contact us today.
Our BLOG
How tax wrappers can mitigate the impact of rising Capital Gains Tax
TESTIMONIALS
The staff at CST are always very friendly and approachable.… Read more “Mr JD Dolling, SW Heating Equipment Ltd”
We have been with CST for more than seven years… Read more “Doris Francis, Engineering Services (Bridgend) Ltd”
Our business has been handled by CST for many, many… Read more “Mr & Mrs Rise”
I moved my business to Clay Shaw Thomas because I… Read more “Sandra Wilkinson of Sage Marketing”
The audit was well planned and executed efficiently, with minimum… Read more “GE Carpentry”
Privately and within the company Clay Shaw Thomas provides a… Read more “Seashore Enterprises”
I am very happy with the service from CST. An… Read more “Mr Atkinson “
The family connection with CST goes back many years and… Read more “Dr Jones”
CST are very efficient, courteous and proactive when dealing with… Read more “Mr CMG Adams”
I have been a client for over twenty years and… Read more “Mr J T Wall”
Always one step ahead of the game, CST have helped… Read more “Mr RT Evans”
CST Staff always give unbiased advice in a clear and… Read more “Mr L Branfield”
It has been a professional pleasure working with CST, they… Read more “Mr P Jenkins”
SUBSCRIBE to our list
If you would like to see full details of our data practices please visit our Privacy Policy and if you have any questions please email tellmemore@clayshawthomas.com.