Proposals for targeted reform to ensure that EOTs and EBTs remain focused on rewarding employees and encouraging employee ownership
On 18 July 2023, the government published its consultation on proposals for targeted reform of the employee ownership trust (EOT) tax regime.
First announced in Spring 2023, the consultation has been expanded to include some specific proposals to reform the inheritance tax treatment of employee benefit trusts (EBTs).
What is an EOT?
EOTs were introduced in 2014 and qualify for special tax-favoured treatment provided certain legislative conditions are met. They are a special type of EBT, under which the trustees of the EOT own the company and exercise control of it for the benefit of all the employees.
What are the main proposals?
The government is seeking to ensure that the applicable tax regimes remain focused on the targeted objectives of rewarding employees and encouraging employee ownership, while preventing tax advantages being obtained through use of these trusts outside of these intended purposes.
In addition to some detailed technical points, the consultation seeks views on a number of areas including:
- proposals to require that the EOT trustees are UK resident (as a single body of persons)
- the proposal to prevent former owners from retaining control of an EOT-owned company by specifying that more than half of the trustees must not be former owners (or their connected persons)
- proposals to ease the EOT bonus rules so that tax-free bonuses can be awarded to employees without directors necessarily also having to be included
Osborne Clarke comment
The tenth anniversary is a logical time to review the operation of the EOT regime.
The consultation contains sensible proposals which are intended to ensure that genuine employee-controlled companies can continue to benefit from the available tax reliefs. Given the significant growth in EOT controlled companies in the last five years, the consultation is welcomed and we generally support the proposals put forward by HMRC.
The consultation closes on 25 September 2023. We are responding to the consultation, along with other advisers and industry bodies.
To view the full update click here.
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