EOT – Put your business in the hands of your employees

Employee Ownership Trusts (EOTs) were first introduced in 2014, with the then government looking to encourage more of these ‘John Lewis’ type company models, after a review found them to be more robust and sustainable than more traditional methods of company succession.


However, it’s only been in the last 12 months that EOTs have seen significant growth, partially due the generous tax breaks offered by them, but also due to them helping to strengthen employee engagement, retention and recruitment.

What is an EOT?

An EOT 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.

What are the benefits of an EOT?

As already touched upon, an EOT can have a positive impact on your team, but there are also tax and more practical benefits which have also helped their popularity.

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.

Tax benefits

  • There is no Capital Gains Tax for current company owners on the disposal of shares to an EOT. For a typical husband and wife owning shares in a trading business valued at £10m, this could generate a tax saving of £1.8m.
  • 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.

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.

What conditions must be met in order to qualify?

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.

This seems too good to be true!?

We agree! EOTs are a valuable method of succession that should be considered by all businesses, however, naturally, they won’t be right for all.

Get in touch with our team if you would like to discuss your circumstances with one of our advisors and see whether an Employee Ownership Trust could be the right thing for you.

Latest news and articles

  • 27 November 2023

    NHS Pension – what’s changing from April 2024

    For many years, we saw no changes in NHS pension contribution rates or pensionable earnings tiers. October 2022 marked the first changes in contribution rates and pensionable earnings tiers since 2015. This was a planned two step approach following earlier consultations. The Department of Health and...
  • 24 November 2023

    The Role of Property Accountants in Maximising Real Estate Investments

    Investing in real estate has always been a profitable venture, but with the ever-evolving financial landscape and unpredictable change in regulations, its fundamental for investors to seek professional guidance. To help explain in more detail the vital role property accountants play to help maximise...
  • 22 November 2023

    The Autumn Statement 2023 Explained

    The Chancellor, Jeremy Hunt, announced his Autumn Statement on Wednesday 22 November. In his opening statement, Hunt made it clear his plan centres around three priorities – reduce debt, cut taxes, and reward work. With The Office for Budget Responsibility stating that the economy will grow each...

Proud to work with: