Why Employee Ownership must be considered

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.