Pay no tax when you sell your company… EOT

Most owners get Entrepreneurs Relief and so only pay 10% on the Capital Gain when they sell their business…  many are not aware there’s a 0% tax option…
Transfer controlling interest to an Employee Ownership Trust (i.e. sell the business to the employees) and you pay no CGT (and no Income Tax and no IHT) on the gains…
And the employees get tax benefits as well…
What’s not to like?

Why sell to an EOT?

  • You get to sell at full market value… to people you know… very quickly… and cheaply… and without the normal hassles of selling a company
  • And there are NO capital gains, income or inheritance tax liabilities …

Do all existing shareholders have to sell all of their shares… ? … no

Can existing directors (you?) stay on and get paid…? … yes

So how’d’s’t work

  1. EOT established
  2. The shareholders sell their shares (at least 51% of the company) to the EOT
  3. This creates a debt owed by the EOT to the shareholders
  4. Trading profits in future years will be used by the EOT to repay the debt to the original shareholders

Qualifying conditions… roughly

  1. The company must be a trading company (or the principal company of a trading group)
  2. The trustees of the EOT must spread the shares to eligible employees on the “same terms”… (and in general Trust property should be used for benefit of all eligible employees)… but…
  3. The trustees may distinguish between employees on the basis of remuneration, length of service and hours worked
  4. The trustees must hold, on an ongoing basis, at least a 51% controlling interest in the company
  5. The number of continuing shareholders who are directors or employees (and any person connected to them) must not exceed 40% of the total number of employees of the company or group

Fancy it?… here’s a great article from BDO   and a Tax Insider article