What is an Employee Ownership Trust?
An Employee Ownership Trust (EOT) is a UK-specific ownership structure that enables a company to be owned, on behalf of its workforce, through a trust. Introduced in 2014, the EOT model is designed to facilitate long-term employee ownership while supporting business continuity and succession planning.
Under an EOT structure, a controlling interest (more than 50%) in the trading company is transferred to a trust. The trust holds the shares for the benefit of all eligible employees collectively, rather than individuals holding shares directly. Day-to-day management remains with the board of directors, while the trust provides stewardship and oversight in the interests of employees.
Why are Employee Ownership Trusts used?
EOTs are most commonly used as a succession solution for business owners who wish to exit gradually or fully without selling to a third party, private equity, or family members. They allow founders to realise value for their shares while preserving the company’s independence, culture, and legacy.
From the company’s perspective, EOTs provide a stable ownership model that encourages long-term decision-making rather than short-term financial extraction. For employees, the structure promotes engagement and alignment, as the success of the business directly benefits the workforce as a whole.
Benefits of Employee Ownership
Employee ownership has been shown to deliver a range of commercial and cultural benefits, including:
- Improved employee engagement and retention
- Enhanced productivity and performance
- Succession certainty
- Cultural continuity
- Long-term business stability
Importantly, employee ownership does not require employees to invest their own money or take on personal financial risk.
Tax Benefits of Employee Ownership Trusts
The UK tax system provides significant incentives to encourage the adoption of EOTs, subject to meeting strict qualifying conditions.
Key tax advantages include:
- Capital Gains Tax relief on the sale of a controlling interest to an EOT
- Income tax-free employee bonuses of up to £3,600 per employee per year (NICs still apply)
- Potential inheritance tax advantages through estate planning
Compliance and ongoing governance are overseen by HM Revenue & Customs, making professional advice essential.
How we can help
Establishing an Employee Ownership Trust is a complex transaction involving tax, valuation, funding, and governance considerations. As chartered accountants, Dominic Hill advises business owners and management teams throughout the entire EOT journey — from feasibility and structuring through to implementation and ongoing compliance. Please get in touch with a member of our team on 01323 649509 or info@dominichill.co.uk if you would like to discuss this further.