About

An introduction to Employee Ownership Trusts

The Employee Ownership Trust (EOT) is a type of employee benefit trust created by the UK Government to encourage owners to sell a controlling stake in a company to its employees.

Provided that certain rules are met, the sale of a controlling stake in a business to an EOT provides relief from any Capital Gains Tax (CGT) that might otherwise be paid by the selling shareholders.

An EOT can also be used to pay income tax-free cash bonuses to staff.

An EOT is a trust established to hold shares on behalf of employees in a company. To be treated as an EOT the trust must meet certain criteria:

It must have a controlling interest in a trading company or the holding company of a trading group – which means it must hold more than 50% of the ordinary share capital and the voting rights, and must be entitled to more than 50% of the company’s profits and assets if the company is wound up.

It must be established for the benefit of all the employees (excluding, broadly, individuals who hold or have previously held 5% of the shares) in the company.

It must treat all employees on an equitable basis – i.e. if it applies benefits to employees it must do so on the same terms (although it can, up to a point, differentiate on the grounds of salary, length of service or hours worked)

If the EOT ceases to meet any of these tests, then the benefits attaching to it may be withdrawn, including the possibility of a clawback of tax reliefs already received.

Fact Sheet

To find out more about the EOT as a tax efficient employee ownership model, download our free fact sheet below or email hello@eotsurvey.co.uk