By Terry Moore, Corporate Partner, Myerson Solicitors

Employee Ownership Trusts (EOTs) have become a popular succession planning option for UK business owners. Introduced in 2014, EOTs offer attractive tax benefits and provide employees the opportunity to share in a company’s success while preserving its values and culture. For small and medium-sized enterprises (SMEs), transitioning to an employee-owned model can provide stability and independence, incentivise employees and ensure long-term sustainability.

In this “Ask the Expert” feature, Terry Moore, a Partner in Myerson Solicitors’ Corporate team and a specialist in EOTs, explores how EOTs work, their key advantages, and why they could be the ideal succession planning solution for your business.

As a business owner, deciding how to transition out of your company is a major milestone. Succession planning not only impacts you but also your employees, customers, and the future of your business. Employee Ownership Trusts (EOTs) present a compelling alternative to traditional business sales for all types of companies.

What is an EOT?

An EOT is a structure where the majority, or all, of a company’s shares are sold to a trust held for the benefit of employees. The concept was introduced in 2014 to encourage employee ownership in the UK, with the Finance Act offering tax incentives to both sellers and employees, provided specific conditions are met.

For selling shareholders, this means an opportunity to exit without the complexities of finding a buyer or compromising the business’s values and culture. For employees, it creates a sense of shared ownership, fostering motivation and loyalty.

Why Choose an EOT?

There are several key benefits:

1. Tax Efficiency for Sellers: Selling to an EOT can provide complete exemption from Capital Gains Tax (CGT) on the sale proceeds. To qualify, the trust must hold more than 50% of the company’s shares and adhere to HMRC guidelines.
2. Preserving Business Independence: Unlike selling to a third party, which may lead to significant changes in operations or culture, transitioning to employee ownership ensures the business continues to run as it has before, with its values intact.
3. Employee Incentives: Employees benefit from indirect ownership without personal financial liability. Additionally, EOTs enable employees to receive income tax-free bonuses of up to £3,600 annually, subject to certain conditions.
4. Simpler Transactions: The EOT route avoids extensive due diligence, warranty negotiations, and the risk of deal withdrawals associated with third-party sales. It also allows sellers to manage the timeline and oversee a smooth transition.
5. Enhanced Productivity and Retention: Research by the Employee Ownership Association shows that employee-owned businesses outperform others, being 8–12% more productive. EOT ownership can also make your company more attractive to new hires and help retain talent.

Is an EOT Right for Your Business?

An EOT is particularly suitable for businesses prioritising culture, independence, and employee welfare. However, it requires careful planning and execution to ensure compliance with legal and tax requirements. Working with experts experienced in EOT conversions, like our team at Myerson, can make all the difference.

At Myerson Solicitors, we not only assist clients in structuring EOTs but also bring the unique perspective of having undergone the process ourselves. In 2024, I led our firm’s transition to become one of the largest 100% employee-owned law firms in the UK. This experience gives me firsthand insight into the practical, financial, and cultural considerations of an EOT.

For SMEs considering succession planning options, an EOT offers a transformative opportunity to secure your company’s future, reward your employees, and reap significant tax advantages.

Choosing the right succession plan is about more than just finances; it’s about preserving your legacy. An EOT could be the solution that aligns your goals with your employees’ aspirations and your business’s long-term success.