3. Seller Financing: In situations where the business owner is open to providing financing, they can opt for seller financing. This arrangement allows the owner to receive payments over time from the trust in exchange for the shares. It provides a flexible option for funding an EOT while ensuring a smooth transition and potentially favourable terms for both parties involved.
Tax Advantages of Employee Ownership Trusts
One of the significant benefits of employee ownership is the potential tax advantages they offer. Following the introduction of Employee Ownership Trusts by the UK Government in 2014, there is a considerable incentive for employers to sell their shares to employees. If the sale and company are structured correctly, shareholders will pay 0% capital gains tax when selling their shares to employees. These shares are also exempt from Inheritance Tax Transfer.
Additionally, following the transaction, the employees will be able to receive a bonus of up to £3,600 free of income tax and the EOT may also benefit from relief from IHT principal charges and exit charges.
These tax incentives can enhance the attractiveness of EOTs as a succession planning tool while supporting the business owner's financial goals.
Ultimately, an Employee Ownership transaction can be funded through several avenues, and the completion of the transaction will depend on the seller's situation and the company's goals.
GS Verde Group has guided many businesses through successful Employee Ownership transactions; where our multidisciplinary approach allows us to provide support in deal structuring, due diligence, heads of terms, trust set-up, and funding. With access to a comprehensive pool of funders across the UK & Ireland, GS Verde can advise on which funding options are open to you and how they might benefit the business and the transaction overall.
Find out more about Employee Ownership here or read about some of the businesses GS Verde has supported on their Employee Ownership journey here.
The GS Verde Group are business-focused experts in getting deals done. The group combines multiple disciplines including law, tax, finance and communications, to provide end-to-end support as a complete advisory team.