Pett on Employee-Ownership Trusts
- ABOUT THIS SERVICE
- 1. INTRODUCTION AND BACKGROUND
- 2. THE CAPITAL GAINS TAX RELIEF
- 3. THE TRUSTEES
- 4. THE TRUST DEED AND OTHER DOCUMENTATION
- 5. BALANCING THE INTERESTS OF VENDORS, TRUSTEES, MANAGEMENT, EMPLOYEES AND OTHER SHAREHOLDERS
- 6. SELLING SHARES TO THE EOT
- 7. FUNDING THE TRUSTEES
- 8. GIFTS OF SHARES TO THE TRUSTEES OF AN EOT
- 9. AN EOT AS A DISCRETIONARY SETTLEMENT – OTHER INHERITANCE TAX ISSUES
- 10. TAX-FREE BONUSES FOR EMPLOYEES
- 11. PUTTING SHARES INTO THE HANDS OF EMPLOYEES
- 12. DISTRIBUTING PROFIT TO EMPLOYEES
- 13. DISQUALIFYING EVENTS AND THE CONSEQUENCES
- 14. DISPOSALS OF SHARES BY THE EOT TRUSTEES
- 15. HOW COULD THE TAX REGIME BE ENHANCED TO ENCOURAGE A MOVE TO EOT OWNERSHIP?
- 16. AFTERWORD
- APPENDIX – USEFUL LINKS
Welcome to Pett on Employee-Ownership Trusts.
This work is about a special type of trust known as an ‘employee-ownership trust’ (EOT) for the benefit of the employees of a company, or group of companies.
Principally, it is about selling a company (C) to the trustees of such a trust in a manner that affords certain vendors relief from capital gains tax (CGT), and allows the company, once it is majority-owned and controlled by the trustees, to pay tax-free bonuses to its employees.
Both forms of tax relief were introduced in 2014 to promote the establishment of employee-owned companies and, in particular, companies owned by a trust for the benefit of their employees.
According to Deb Oxley OBE, Chief Executive, Employee Ownership Association this ‘provided the gear change needed to stimulate greater interest in, and take up of, employee ownership. By providing business founders with a means of eliminating their CGT liability at the point of ownership succession, in return for passing a controlling interest into the hands of the employees via an EOT, awareness of this innovative model was secured. More accountants became purposely interested in making themselves familiar with EOTs, supporting their client’s understanding and consideration of the model as a viable alternative to a trade sale. More lawyers were contracted to support the establishing of EOTs. And banks and other lenders were forced to consider how they might support the needs of businesses that were now majority owned by a trust.’
About the author
David Pett is a tax barrister at Temple Tax Chambers specialising in employment-related taxes, employment trusts, employee-owned companies and related company law, trust law and tax disputes.