Does an EOT make sense to you?

During the Autumn Budget, the Chancellor announced that Capital Gains Tax (CGT) would apply to Employee Owned Trusts (EOTs). For a model that was once so tax efficient, do EOTs still make sense?

In the last decade there has been a reported 1,640% increase in EOTs – which is when a trust acquires at least 50% of a company on behalf of its employees. It’s an extremely useful model if you are thinking of reducing your involvement with a company.

EOTs can allow employees to collectively benefit from the success of the business even while that involvement reduces. Another benefit of an EOT is that it qualified for 100% relief if the company was a trading business or a holding company of a trading group.

However, since the Autumn Budget, the Chanceller has limited CGT relief on disposals to EOTs at 50%. HMRC reported that the cost of CGT relief has increased significantly over the years, reaching £600 million in 2021/22.

With forecasts suggesting it could rise to more than 20 times the original cost, to £2 billion by 2028–29, the Chancellor decided to act.

Despite relief being cut in half, there are still significant benefits with EOTs. For example, tax-free bonuses of up to £3,600 per employee each year and no Inheritance Tax (IHT) for selling shareholders.

Employee ownership can also improve incentivisation and retention due to increased involvement in the company – which in turn can help protect company culture.

If an EOT makes sense to you, or you would like to discuss your options, contact our team today to see how we can help.