Employee ownership trusts - a sustainable opportunity for UK private schools

As the UK’s private education sector faces mounting financial pressures and regulatory shifts – most notably, of course, the imposition of VAT on private school fees from January 2025 – many independent schools are exploring alternative ownership structures. In the majority of cases, schools are exploring consolidations with other local schools or transfers to larger groups. Unfortunately, there is also an increasing number of schools that are finding their operation is no longer financially viable and are taking the difficult decision to wind up. 

However, there is another option. Employee Ownership Trusts (EOT) offer an alternative that is well-tailored to the school environment and is something that should be considered by all schools contemplating an operational shift. Transferring a school to an EOT enables a school to be owned by and run for the benefit of its employees, and offers compelling financial, cultural, and operational advantages; from an owner’s perspective, an EOT offers a tax efficient exit while allowing the school to continue its important educational mission.

This blog explores the advantages of an EOT in the context of a school environment.

Tax efficiency 

The most immediate benefit – at least from an owner’s perspective – of transferring a private school into an EOT is the 100% capital gains tax relief available if a controlling interest is sold to a qualifying trust. This relief, introduced in 2014 and reaffirmed in the Autumn Budget 2024, allows founders or shareholders to exit without incurring CGT liabilities, making succession planning significantly more viable.

Preserving educational ethos and continuity

Unlike a traditional sale where a school may be subsumed into a wider group, transferring a school to an EOT allows the school to maintain its own distinct educational ethos, governance structure, and community relationships. This is because the trust will hold the school on behalf of its employees, and the trust with the school’s governing body may retain a certain degree of autonomy over the day-to-day running of the school to ensure that decisions remain aligned with the institution’s founding values and long-term mission.

Resilience and staff engagement

As a benefit to the staff, schools under EOT ownership can pay income tax-free bonuses of up to £3,600 per employee per year – a clear means of encouraging staff retention and boosting morale in a sector where staff turnover and budget constraints are persistent challenges.

In parallel with this, it’s not unusual for EOTs to enjoy higher staff engagement, lower absenteeism, and greater resilience during economic downturns due to the feeling of ownership and control an EOT can bring with it. In the context of a school, this can translate into more stable teaching environments, improved student outcomes, and a stronger sense of collective purpose among faculty and support staff.

The indirect ownership model – where employees benefit through profit share rather than direct equity – also simplifies governance while still empowering staff.

Strategic positioning and public perception

In an era of increasing scrutiny over private education, EOTs offer a more socially responsible ownership model. By placing the school in the hands of its employees, institutions can enhance their public image, attract values-driven families, build trust with parents and staff and align themselves with broader trends in ethical governance.

A lifeline for schools in financial difficulty

Finally, for private schools experiencing financial distress – whether due to declining enrolment, rising costs, or regulatory changes - transferring to an EOT can offer a structured and stabilising solution. By removing the need for external buyers and by transferring the school to a body where the need to generate profits for its shareholders is removed from the equation, an EOT model enables operations to continue with reduced financial pressures.

By transferring a school to an EOT, staff should feel incentivised to work collaboratively toward sustainability, and the school may be better positioned to access support and community engagement with greater credibility.

Whether you're a school looking to restructure, an owner contemplating an exit, an investor targeting opportunities or a group hoping to expand, Mills & Reeve can help. For more information visit here.