Employee Ownership Trusts (EOT)

The speculation concerning increases in rates of Capital Gains Tax has prompted more vendors (of trading businesses) to use an EOT to trigger a disposal of their business. EOT's were introduced by the Government in September 2014 in the hope of promoting wider 'share ownership' by offering generous tax breaks for vendors.

Advantages:

- quick to implement

- facilitates a smooth transition and allows for gradual transition to employees

- employees don't use their own funds

- reduced professional fees compared to a market sale

- greater workforce involvement and engagement

- vendors achieve full market value (an independent valuation required)

- no CGT liability for vendors in certain circumstances

- vendors can remain in situ (providing their expertise) and be remunerated for their services

- employees could each receive tax free bonuses of up to £3,600 per annum

In simple terms the consideration for the shares is fulfilled by third party finance and vendor deferred arrangements (together the Debt). The business then makes regular contributions into the EOT to enable it to repay the Debt.

Yes there are certain qualifying conditions, however this summary is merely an overview of the use of an EOT.

If you'd like to learn a little more, please get in contact.

(Whitehall Corporate Finance Ltd do not advise on tax matters although we have trusted partners who can deliver those aspects if required)