Employee Ownership Trusts and the Autumn Budget

Well, you never knew with this budget whether it would be a trip to the bar or to the undertakers but for Employee Ownership Trusts, it may turn out to be "service please, barman!"

The headline from James de le Vingne, the Chief Executive of the Employee Ownership Association, is : “It’s with a sense of relief and excitement that I welcome today’s decision from Government to safeguard the future of the EOT…..”?

In precis, the budget supports the continued positive benefit of transferring ownership to employees which is shown to produce stable, more profitable businesses.

It has the effect of introducing changes that mainly derive from the HMRC Consultation paper of September 2023

The CGT deferral remains: the 'zero rate on sale' as it is sometimes incorrectly described but it requires that:

• former owners cannot retain control of the company post-sale by retaining control of the Employee Ownership Trust. Surprisingly, this was previously allowed but best practice was not to have former owners in control
• require that the trustees of a qualifying Employee Ownership Trust be UK resident
• require that reasonable steps are taken to ensure that the consideration paid on disposal of shares to the trustees does not exceed market value. It will be interesting to see how this is interpreted but it will could put an onus on the buying trust to properly apply due diligence to the valuation.? It should also, perhaps, extend to a proper assessment of the difference between a third party valuation and the consideration; not necessarily the same thing?
• and increases the period of time within which relief can be withdrawn from the sellers if the Employee Ownership Trust conditions are breached post-disposal, extending the period by a further 3 years. An incentive for former owners to stay close to the EOT to ensure disqualifying events do not take place??

More will come out in the following days but that is my take on it.

Always ready to talk EOTs

• and the photo? a combined undertakers and off license near Cork in the 70s
• oh, and if you have formed or are forming an EOT, join the eoa : it really is a source of knowledge and support

?John