Employee Ownership Trusts following the 2024 Autumn Budget

In the autumn budget, the Chancellor Rachel Reeves raised the headline rates of Capital Gains Tax from 10% and 20% to 18% and 24%. She has also made notable changes to the Business Asset Disposal Relief regime, as reported in our recent article, substantially reducing the benefit of this relief over the next two years.

The legislation surrounding EOTs has been under the spotlight recently to ensure that it is fit for purpose and not being abused from a tax perspective. As a result there are likely to be some key changes:

The seller will not be able to retain effective control of the company post-sale
The trustees of the EOT must be UK resident at the time of the sale to the EOT
The trustees must seek to ensure that the consideration paid to acquire the shares does not exceed a reasonable market value
The period during which relief can be clawed back from the vendors if the conditions are no longer met will be extended to four tax years post-sale
The seller will be required to provide additional information to HMRC when claiming their relief
Relief from tax on payments made to the trustees to fund the payment of consideration will be formally introduced
It will become possible to exclude directors from the payment of tax-free bonuses made by the trust.

These proposed changes should not negatively impact a genuine sale. However, the legislation is complex and advice should always be sought, not only in relation to the tax position but also with respect to commercial considerations. A common feature of a business sale to an EOT is deferred consideration which can be risky for the vendor should the fortunes of the business change.

More details on Employee Ownership Trusts are available here.

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Autumn Budget Summary 2024

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