The tax regime of employee ownership trusts – Government announces consultation

The Government has announced an intention to publish a consultation concerning the use and effectiveness of the employee ownership trust (EOT) tax regime. This announcement was made in a policy paper published on 27 April 2023.

Why has this consultation been announced?

The Government have said that they wish “to ensure that the reliefs are targeted closely at incentivising EOTs as an employee ownership business model whilst preventing the reliefs from being used for unintended tax planning”. 

By way of reminder, providing that specific, detailed conditions are met, the proceeds of a sale of a company to an EOT may be received tax free by the selling shareholders.  The Government appear to be reviewing this incentive.   

What are the implications of the consultation?

It is, of course, uncertain what the Government will say as part of their consultation and any subsequent changes they may make to the legislation. 

The Government may decide to amend the current legislation concerning the tax regime for EOTs to prevent EOTs being “used for unintended tax planning”.  This may mean tightening the conditions that a selling shareholder must meet in order to receive the proceeds of the sale of their company tax free or even altering what tax reliefs they receive.

The announcement of the consultation indicates that the Government, and HMRC, are increasingly scrutinising the sale of companies to EOTs.  This should be borne in mind by those considering a sale to an EOT and is a reminder that selling shareholders should carefully consider whether selling to an EOT and genuinely transferring control to the employees of the company so that it may be run in the spirit of the John Lewis Partnership, for example, is what they intend to do. 

What are EOTs?

Our blog post goes into further detail about what an EOT is and why you might consider selling to an EOT.   

How can we help?

If you are interested in learning more about EOTs, or whether an EOT is right for your business, then please contact John Kahn.

Our content explained

Every piece of content we create is correct on the date it’s published but please don’t rely on it as legal advice. If you’d like to speak to us about your own legal requirements, please contact one of our expert lawyers.

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