Employee Ownership Trust structures have become increasingly common over the last decade or so as more businesses adopt the ownership model.
The team at Leonard Curtis Legal, together with their network of professional advisors to SMEs, have developed significant experience and expertise in advising EOTs and business owners.
The EOT model adopted by the UK has been held out as an example of good practice internationally and formed the basis of similar templates rolled out in other jurisdictions, most recently in Canada in 2023.
As the EOT market in the UK matures, what can we expect for the future?
The Government held a consultation last summer to seek views on proposals for targeted reform to the EOT tax regime. It was clear from the remit of the consultation that the government was broadly supportive of the EOT model and was proposing, at that time, to make only minor amendments to the tax rules.
The consultation questions included specific targeted questions on the following issues:
- Tightening up the rules on former owners and connected parties from retaining control of an EOT post sale and requiring EOT trust boards to include persons drawn from specific groups (eg employees or independent persons).
- Tightening up rules to ensure that trustees of EOTs are UK resident.
- Clarifying the tax rules on “distributions” made by EOTs to pay former owners.
- Making minor changes to tax rules surrounding EOT bonuses.
In addition to these specific issues, the consultation asked for general comments on the way that EOT regime could be “reformed to better support employee ownership”.
Our view is that the limited and targeted changes to the rules as anticipated by the consultation are to be broadly welcomed. The right balance needs to be met between the interests of former owners/sellers, the EOT and body of employees and structuring legal documentation to achieve this balance is already familiar to lawyers with expertise in this area.
The changes (if they are made) should provide further assurance to business owners and employees that EOTs remain a suitable ownership structure, minimising risks for individuals and enhancing employee retention and motivation.
The consultation closed in September 2023 and, despite some press speculation about changes, nothing concerning EOTs was announced in the Spring Budget.
With a general election imminent, and other changes to tax policy likely to take precedence whatever the results, it appears unlikely any changes will be made in the foreseeable future.
For more information about EOTs or other legal issues we can help with please contact jonathan.roberts@leonardcurtislegal.co.uk or jennifer.moore@leonardcurtislegal.co.uk.
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