Employee Ownership Trust (EOT): Tax-Free Business Succession in the UK
Thinking of selling your business? What if you could exit at ZERO tax while securing your company’s future?
Considering an Employee Ownership Trust (EOT) for your business? At David Craddock Consultancy, we specialise in guiding business owners through the EOT process, ensuring a seamless transition that benefits both owners and employees.
An Employee Ownership Trust (EOT) is a government-approved structure that enables UK business owners to sell a controlling interest in their company tax-free, while transitioning ownership to employees. Designed for succession planning, EOTs ensure business continuity, cultural integrity, and long-term employee engagement.
Transitioning to an EOT structure offers a powerful route for selling to employees while ensuring long-term stability and shared success. As part of a well-considered succession planning through EOT, business owners can exit in a way that protects the company’s culture, rewards loyal staff, and unlocks substantial tax relief for employee ownership. This increasingly popular model supports sustainable business continuity and offers a future where employees have a vested interest in growth and performance.
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EOT at a Glance:
✅ 100% Capital Gains Tax Relief for qualifying business owners
✅ Sell a majority stake to a trust that benefits employees
✅ Maintain business independence and cultural continuity
✅ Tax-free annual bonuses up to £3,600 per employee
Why Choose an EOT for Business Succession?
Selling to employees has many benefits, such as:
✔️ Tax-Free Exit – Sell your business at 0% Capital Gains Tax
✔️ Legacy Protection – Ensure the business thrives beyond your ownership
✔️ Employee Motivation – Boost engagement, productivity, and job satisfaction
✔️ Long-Term Stability – Create a sustainable, people-focused ownership structure
✔️ Tax-Free Bonuses – Companies under EOT ownership can pay tax-free bonuses.
Considering an EOT for your business? Contact David Craddock for expert guidance on structuring an Employee Ownership Trust that maximises benefits for you and your employees.
Service Offerings:
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EOT feasibility assessments
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Trust structuring and implementation
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Tax planning and compliance
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Employee communication strategies
Who Should Consider an EOT?
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Founders looking to retire
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Family businesses with no clear successor
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Business owners wanting to reward long-serving employees
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Companies focused on long-term sustainability over short-term profit
How an Employee Ownership Trust Works – Step by Step
An Employee Ownership Trust is set up to hold a controlling stake in your business on behalf of employees, ensuring they benefit from the company’s success. This structure fosters stronger employee commitment, improving business performance and long-term growth.
✔️ Business owners sell shares to an EOT, which holds them on behalf of employees.
✔️ The trust is managed by appointed trustees who act in the employees’ best interests.
✔️ Employees don’t directly own shares but benefit from business performance.
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EOT Benefits for Business Owners, Employees, and Companies
For Owners:
- Exit on favourable terms while safeguarding legacy
- EOTs are one of the few employee share trusts that offer 100% Capital Gains Tax relief on qualifying sales
- Greater control over the transition process compared to third-party sales
For Employees:
- Gain a stake in the business and a voice in its future
- Opportunity to share in the company’s financial success through tax-free bonuses
- Increased engagement, morale, and job security
For the Business:
- Retains independence and company culture
- Improves productivity through shared ownership ethos
- Facilitates long-term planning without external investor pressures
Step-by-Step: How to Transition to an EOT
Feasibility Review
Assess whether your business qualifies for EOT treatment (e.g. must be a trading company, majority of shares to be sold, etc.).
Independent Valuation
Obtain a fair market valuation of the company to determine the purchase price for the Employee Ownership Trust.
Establish the EOT
Set up the trust structure, including legal formation and the appointment of trustees who will act in the interests of the employees.
Finance the Transaction
The trust acquires the shares from the current owners, typically using a combination of company profits and deferred payments.
Inform and Engage Employees
Communicate clearly with employees about the transition, their role in the new structure, and the benefits of employee ownership.
Comply with HMRC Requirements
Ensure that the EOT meets the statutory requirements to qualify for Capital Gains Tax relief and other benefits.
Ongoing Governance
Maintain transparent governance and employee engagement to support the success of the trust model over time.
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What’s in It for Employees?
✔️ Tax-advantaged bonuses
✔️ Greater job security & career growth
✔️ A real stake in the company’s future success
David Craddock, a leading UK authority on employee share schemes and author of Tolley’s Guide to Employee Share Schemes, explains why an EOT might be the perfect exit strategy for your business.
Want to explore your options? Let’s talk! Get in touch today to discover how an Employee Ownership Trust can benefit you and your employees!
✔️ View our EOT flyer.
EOTs and Other Employee Share Trusts
While an EOT is a specific type of employee share trust, it differs from more traditional share schemes by focusing on collective ownership. Unlike discretionary share plans or SIPs (Share Incentive Plans), an EOT allows all employees to benefit equally through a trust structure that holds a controlling interest in the business.
FAQs on Employee Ownership Trusts (EOTs)
Q1: What is an Employee Ownership Trust (EOT)?
A: An EOT is a government-backed structure that allows a company to be owned by its employees through a trust, offering significant tax incentives to business owners.
Q2: What are the tax benefits of an EOT?
A: If qualifying conditions are met, business owners can sell their shares to an EOT completely free from Capital Gains Tax.
Q3: Who is eligible to set up an EOT?
A: Any UK-based trading company can transition to an EOT model, subject to certain criteria set by HMRC.
Q4: Why choose an EOT for succession planning?
A: An EOT allows founders to exit while preserving company culture, rewarding employees, and maintaining business continuity.
Q5: Is an EOT the same as other employee share trusts?
A: While all employee share trusts aim to give employees a stake in the business, the EOT stands out by allowing full or majority ownership through a single trust vehicle, offering both governance and tax advantages.
EOT Webinar: The Credible Alternative To Succession
Providing EOT advisory services to clients across the UK, including London, Manchester, Birmingham, and surrounding areas.
David Craddock has been advising on employee share schemes and employee share trust arrangements for over 35 years. He advises on every aspect of the implementation process, working personally with the client at each stage, and offering solutions and expertise in all the technical questions that require clarification during the consultation. As an expert share valuer, David is the Technical Secretary and Advisor to the Share Valuation Worked Examples Group that meets quarterly with HMRC. He is also a member of the Steering Committee of The ESOP Centre, Economics Policy Adviser to The Employee Shares Policy Forum and the Educational Director of The ESOP Institute.
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As a form of employee share trust, the EOT not only secures a company’s legacy but also enhances employee motivation by embedding shared ownership at the heart of the organisation. David Craddock Consultancy specialises in structuring and implementing employee share trusts, including EOTs, tailored to your business needs.
If you are interested in speaking with David with a view to engaging his expert services for a no obligation free initial consultation in Employee Share Schemes, Share Valuations or for the delivery of seminars or courses, then please contact David here: Contact Us
