The Autumn Budget 2024 introduced updates to Employee Ownership Trust (EOT) legislation, a move anticipated since HMRC's consultation in July 2023. Initially thought sidelined, the new Chancellor has focused on EOTs as part of broader capital gains tax (CGT) changes, aimed at tightening rules and reducing tax leakage.

The changes involve positive adjustments, administrative clarifications, and increased compliance reporting for businesses and their shareholders who have transitioned employee ownership. Here's what business owners need to know about the new requirements and how GS Verde Group's expertise can help navigate the evolving EOT landscape.


Key EOT Changes and Their Implications


Extended Compliance Period for CGT Relief

• What's Changed: HMRC requires all qualifying conditions for CGT relief to remain satisfied for four tax years following the year of sale. Previously, compliance was only needed for the year after the sale.
  

• Implications: This significant change introduces an extended period of risk for shareholders, where disqualifying events could lead to CGT relief withdrawal. GS Verde Group advises on proactive monitoring and planning to manage this risk, ensuring business owners and trustees understand and fulfil requirements to maintain tax relief over the extended period.
  

Increased Disclosure Requirements

• What's Changed: Sellers to provide more detailed information in their CGT relief claim, including the number of employees and the agreed purchase price at the time of the EOT transaction.
  

• Implications: Increased transparency and disclosure in sellers' self-assessment tax returns GS Verde's tax team can support sellers with the submission of accurate tax returns and provide accurate data for further for porting & filing. This provides clients with a structured approach to disclosure that aligns with regulatory standards.
  

Reduced HMRC Clearance Applications

• What's Changed: The government has simplified the process by reducing the number of HMRC clearance applications required for EOT transactions.
  

• Implications: This administrative change may expedite the transaction process, reducing timelines while upholding due diligence. GS Verde has tax specialists to know when a clearance is required, and if not required, leverage this change to move transactions forward efficiently.
  

UK Residency Requirement for EOTs

• What's Changed: To qualify for tax relief, the EOT trustees are to be UK-resident at the time of sale, a measure aimed at curtailing offshore structures.
  

• Implications: This change is introduced with the aim of preventing cross-border tax avoidance through mitigation of double taxation. GS Verde's expertise in structuring EOTs helps ensure compliance with the updated residency requirement.
  

Clarified Tax Exemption for EOT Contributions

• What's Changed: Contributions from the company to the EOT for the purpose of funding the purchase price are now explicitly tax-exempt in the hands of the trustees.
  

• Implications: This welcome clarification aligns with previous HMRC practices, but now places it into law, ensuring that contributions used to fund buyouts are tax efficient. GS Verde guides clients on structuring contributions pre/post-transaction to optimise tax benefits.
  

Impact of increased Capital Gain Tax

With the higher rate of CGT increasing from 20% to 24% from 30 October 2024, selling to an EOT remains tax advantageous. The CGT relief for an EOT sale remains unchanged, allowing sellers who meet qualifying conditions to benefit from a full CGT exemption on their share disposal. This 0% effective rate presents an attractive option when compared with other exit options.

Beyond tax savings, employee-owned business offers advantages like increased employee engagement, innovation, productivity, cultural continuity and flexibility for selling shareholders. Under an EOT structure, employees indirectly own the business as beneficiaries of the Trust and can receive tax-free bonuses up to £3,600 annually, fostering an aligned, collaborative and purpose-driven workplace. For owners, EOTs allow a full or phased exit, with options to retain up to 49% of the company.


Weighing the Benefits and Considerations of EOTs

EOTs continue to be an attractive exit option for business owners. By offering full CGT relief at exit, EOTs stand out as a tax-efficient option, enabling business owners to transfer ownership while preserving the company's legacy and enhancing employee engagement.

Change to UK residency requirement and extended compliance period require careful planning and ongoing governance & compliance is essential.


Why Choose GS Verde Group?

At GS Verde Group, we offer end-to-end support for EOT transactions, integrating expertise across corporate finance, legal and tax advisory services. Our unique "one team" approach helps to navigate both the financial and regulatory complexities of EOTs, ensuring that each transaction is structured efficiently and fully compliant with evolving regulations.

How We Support EOT Transactions:

• Comprehensive Compliance: GS Verde's team guides clients through the entire compliance process, proactively monitoring the extended CGT relief period and advising on strategies to prevent disqualifying events.
  

• Strategic Planning: From financial modelling to structured buyout agreements, we craft a tailored approach that meets the unique needs of each business owner, whether they seek a full exit or wish to retain a stake.
  

• Employee-Centric Transitions: We prioritise structures that benefit both selling shareholders and employees, balancing the needs of all stakeholders to foster a sustainable employee-owned company culture.
  

Is an EOT Right for Your Business?


The benefits of selling to an EOT—including relief from CGT and employee engagement—make it an appealing exit route, especially as CGT rates rise. However, deciding whether an EOT is right for your business requires consideration of factors like long-term financial health, employee readiness, and succession goals.

To explore whether an EOT aligns with your vision for the future, contact GS Verde Group today. Our team has the expertise to help you achieve a smooth, compliant transition that maximises benefits for you, your business, and your employees.