Why Employee Ownership must be considered
Steve Tebbutt · Posted on: December 11th 2024 · read
As expected, the Budget on 30 October 2024 confirmed Capital Gains Tax (“CGT”) rates will increase, and that Business Asset Disposal Relief (“BADR”, or “Entrepreneurs’ Relief”, as it was once known) would effectively be ended. More onerous were the announcements to curtail Inheritance Tax (“IHT”) relief for owners of trading businesses and the increase in employer National Insurance Contributions (“NIC”).
By contrast, Employee Ownership Trusts ("EOTs") survived the Budget largely unscathed, despite concerns they may be targeted. Notably:
- EOTs continue to offer an uncapped 0% effective rate of CGT to vendors for gifts or sales of company shares to EOTs, provided all the necessary conditions are met.
- The Budget maintained that EOTs can be structured to avoid IHT implications on transfer, making EOTs an even more compelling option when considering that IHT relief for large estates is set to be significantly reduced.
- Whilst EOTs provide no NIC relief, they continue to allow companies owned more than 50% by an EOT to pay annual tax-free bonuses to employees of up to £3,600. This provides more flexibility on remuneration and could help ease some of the pressure on employers brought about from the increasing NIC burden whilst retaining planned net pay.
Of course, an EOT should not be all about tax - but increasingly the tax benefits of an EOT command the need for a seat at the table for Employee Ownership (“EO”) when a responsible business owner considers their exit plan and the future of the business. To explore the tax implications in more detail, download our guide today.
MHA have significant experience of handling all aspects of EOTs and are proud advisor members of the Employee Ownership Association.
Articles from the series
Employee Ownership: Capital Gains Tax
This is the first instalment in our series of insights exploring why Employee Ownership should be considered. In this insight, we explore Capital Gains Tax (“CGT”).
Employee Ownership: IHT
This is the second instalment in our series of insights exploring Inheritance Tax (“IHT”)and what needs to be done.
Employee Ownership: NIC
As we continue our series of insights exploring why Employee Ownership should be considered, we look at National Insurance Contributions (“NIC”) and how an Employee Ownership Trust (“EOT”) can lighten the load.
Employee Ownership: Value beyond tax benefits
In our final instalment in our series of insights exploring why Employee Ownership (“EO”) should be considered, we look at the other benefits of Employee Ownership Trusts (“EOTs”) and new changes post-Budget.
Download our guide
Please provide your details to download our guide on why employee ownership must be considered following the Budget on 30 October 2024.
