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Employee Ownership Trusts (EOT)

Kirk Rice

Employee Ownership Trusts (EOT) Explained

Employee Ownership Trusts (EOT) were introduced by the Government through the Finance Act of 2014.

Created as a type of employee ownership trust, they were intended to benefit both employees and companies. Employed correctly, EOTs can support growth and business succession in a sustainable and equitable way. Additionally, due to their more inclusive business structure, they could help boost staff engagement

What is an Employee Ownership Trust (E.O.T)?

An EOT is set up as a trust fund and employees must have a controlling stake of 51% or greater. The trustees are then responsible for management of shares, on behalf of the trust’s employees.

Some or all a company’s ownership can also be transferred to its employees by its shareholders (LLP or LTD companies). Positive tax incentives are also available, and qualifying companies can be sold to an EOT free of capital gains tax (CGT). EOT-owned businesses can also pay employees a tax-free £3,600 bonus every year. Together, these benefits can make EOTs a good choice for many companies.

However, EOTs may not suit all company types. Below, we lay out the pros and cons of Employee Ownership Trusts.

What are the pros of Employee Ownership Trusts?

Capital gains tax exemption (CGT) on the sale of shares to the trust, letting sellers realise full value without CGT liability.
Annual bonuses, tax-free up to £3,600 per employee, rewarding staff without extra income tax.
Smooth exit route for owners, avoiding the need to find a third-party buyer and streamlining succession.
Stronger employee engagement, boosting retention and attraction by giving staff a stake in the company’s success.
Flexible seller involvement, allowing former owners to stay on as directors, minority shareholders or advisors.
Departing founders can use cash in the business, loan note structures, and debt. They are then repaid from company cash flows, to crystallise their value in the business.

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What are the cons of Employee Ownership Trusts?

Deferred consideration means sellers often receive part of the purchase price over several years, not all upfront.
Interest on deferred payments carries normal tax treatment, so interest charges aren’t covered by CGT relief.
Relief clawback risk if the trust loses control of the company or fails to meet ongoing conditions.
Set-up and funding complexity, including trustee governance duties, valuations and potential financing costs.
Best for stable, profitable businesses; high upfront costs and administrative burdens can deter smaller or early-stage firms.

Are Employee Ownership Trusts right for your business?

If you’re thinking about succession planning or exiting your business, an EOT is one of several options available. To find out if it’s the right option for you, get in touch with our EOT specialists via info@kirkrice.co.uk

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Our Team

Meet our experts.

Gauhar joined the firm’s General Practice team in 2017 where he brought with him a range of experience servicing OMBs and SMEs. Having expanded his expertise into personal and corporation tax, he moved to our Tax Specialist team in 2019 to support our individual and corporate clients across various areas of tax. He has subsequently also qualified as a Chartered Tax Advisor. Gauhar Chaudhary Director - Tax North Hampshire
Viru Patel
Richard joined Kirk Rice in 2024 having spent 15 years as a tax partner at Rice Associates. He advises clients from individual business owners to large corporate clients. Outside of work he enjoys outdoor life including running, cycling, and swimming plus spending time with his family. Richard Somerville Partner - Tax Thames Valley

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Contact Kirk Rice

Request Appointment

Employee Ownership Trusts (EOT)

Employee Ownership Trusts (EOT) Explained

What is an Employee Ownership Trust (E.O.T)?

What are the pros of Employee Ownership Trusts?

Free discovery call

If you have any questions, please get in touch

What are the cons of Employee Ownership Trusts?

Are Employee Ownership Trusts right for your business?

Free discovery call

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