Key changes announced for Employee Ownership Trusts

Following a recent consultation on improving the tax regime for sales of shares to Employee Ownership Trusts (EOTs), a comprehensive package of measures has been announced in the Budget.

Most of these changes will take effect on 30 October 2024 and will be included in the upcoming Finance Bill.

The key changes are as follows:

• Control Restrictions: Former owners and individuals connected to them will no longer be allowed to retain control of companies post-sale through direct or indirect control of the EOT.
• Trustee Residency Requirement: The trustees of an EOT must be UK residents as a single body at the time of the disposal to the EOT.
• Tax-Free Contributions: Legislation will confirm that contributions made by a company to an EOT for repaying former owners for their shares will not incur Income Tax as a distribution.
• Eased Bonus Provisions: The rules governing tax-free bonuses will be relaxed, enabling bonuses to be awarded to employees without the necessity for directors to be included.
• Extended Relief Period: The time frame for withdrawing relief from a former owner if EOT conditions are breached will be extended to the end of the fourth tax year following the tax year of the disposal.
• Market Value Assurance: Trustees are required to take reasonable steps to ensure that the consideration paid for acquiring company shares does not exceed market value.
• CGT Claim Requirements: Individuals claiming Capital Gains Tax (CGT) relief must provide information on sale proceeds and the number of employees at the time of disposal.

These changes aim to strengthen the EOT framework, encouraging more businesses to transition to employee ownership while ensuring compliance and fair value assessments. Stay tuned for further developments as these measures are legislated!

Get in touch

If you have questions about these new measures for Employee Ownership Trusts or want to learn more about other changes from the Autumn Budget, don’t hesitate to speak to our experts.