What are the advantages of an Employee Ownership Trust (EOT)?

Employee Ownership Trusts (EOTs) are becoming an increasingly popular business structure in the UK. Introduced in 2014, EOTs provide a tax-efficient way to transition ownership while fostering employee engagement and long-term business sustainability. There are several compelling reasons why businesses should consider adopting this innovative model.

By Chris Davies

One of the primary incentives for transitioning to an EOT is the significant tax relief available. Shareholders who sell a controlling interest in their company to an EOT can benefit from a zero per cent Capital Gains Tax rate on the sale. Furthermore, employees of EOT-owned companies can receive tax-free bonuses of up to £3,600 per year, making this structure financially advantageous for both sellers and employees.

Unlike a traditional sale, transitioning to an EOT ensures the business remains independent and preserves its legacy. This can be particularly appealing to founders who want to secure the long-term future of their business and ensure that its values, culture, and mission are maintained. Employee ownership has also been shown to increase engagement and productivity. When employees have a stake in the business’s success, they are more likely to align their efforts with its goals. This sense of shared purpose fosters collaboration, innovation, and a commitment to high performance.

For business owners seeking an exit strategy, an EOT provides a smooth and flexible transition. Unlike a traditional sale to a third party, selling to an EOT can avoid protracted negotiations and ensure the handover is executed in a way that benefits all stakeholders. Owners often have the option to remain involved in the business during the transition period if desired.

EOTs mitigate the risks associated with external acquisitions, such as potential job losses, changes in company culture, or a shift in strategic priorities. By transferring ownership to employees, businesses can maintain control and stability while avoiding the uncertainties of a sale to outside investors. Companies with employee ownership are often seen as more attractive employers. The model helps retain existing talent by offering a clear stake in the business’s success, while also appealing to prospective employees who value a collaborative and inclusive workplace.

An EOT structure can align with a company’s Environmental, Social, and Governance (ESG) objectives. By promoting fairness, transparency, and long-term sustainability, EOTs demonstrate a commitment to responsible business practices, which can enhance the company’s reputation and stakeholder relationships.

An Employee Ownership Trust is more than just a tax-efficient way to transition ownership; it is a strategic tool that fosters a more engaged workforce, preserves company culture, and aligns with long-term sustainability goals. For business owners looking to secure their legacy while rewarding employees, an EOT presents a compelling solution. If you are considering transitioning your business to an EOT or would like to learn more about the benefits, get in touch with our team at UHY Ross Brooke. Our experts can guide you through the process to ensure a seamless and successful transition.