Employee <em>Ownership </em> Trusts

Put your business in the hands of your employees.

Employee Ownership Trust

What is an Employee Ownership Trust?

An Employee Ownership Trust, or EOT for short, is a trust which is set up for the benefit of the employees of a business. Typically, the existing shareholders will sell a controlling interest (at least 51%) to the trust which results in the company becoming employee owned.

The business is then run for the benefit of all employees, with employees also then having a stake in the future success of the company. This doesn’t just apply to traditional companies, LLPs and those part of a bigger group can also take advantage of an EOT.

Employee Ownership Trust - DJH Business Advisers

What are the benefits of an EOT?

  • Tax benefits

    • From 26 November 2025, CGT relief on disposals to EOTs is restricted to 50%. Only 50% of the gain is eligible for relief; the remaining 50% is immediately chargeable at the appropriate CGT rate.
    • There is no minimum requirement to own ‘X’ number of shares in the business before you can qualify, nor is there any minimum ownership period.
    • All employees, once the company is controlled by the EOT, can receive tax free bonuses of up to £3,600 per year.
    Employee Ownership Trust

  • Team benefits

    • Staff recruitment and retention should be easier as well as reduced absenteeism.
    • Employees interests are aligned with the interests of the shareholders resulting in a single desire for business prosperity.
    • Current directors can remain in their roles if desired and receive market-rate remuneration packages.
    Employee Ownership Trust

  • Practical benefits

    • The sale to an EOT is seen as a ‘friendlier’ method of succession which means the process may be quicker than other traditional methods.
    • Where businesses have tried to go through a third-party sale process and failed, an EOT could give them another option.
    Employee Ownership Trust

Qualifying for an EOT

The qualifying conditions for both the Capital Gains Tax exemption and also the exemption from income tax on bonuses are complex and detail orientated, however, in very simple terms the main conditions to consider are:

  1. The company being sold must be a trading company or the holding company of a trading group.
  2. All employees must be able to benefit from the EOT on equal terms.
  3. The EOT must continue to own a controlling interest in the company.
  4. The number of employees who are also shareholders, along with any of their relatives that work for the company, cannot exceed 40% of total employees.

There are also several conditions that must be met post acquisition; however, they are broadly similar to the above.

Employee Ownership Trust - DJH Business Advisers

Could an EOT be right for you?

Get in touch with out expert team to find out more

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