Autumn Budget 2024: EOTs – what has changed?

The government has announced changes to employee ownership trust (EOT) legislation, which we have summarised below.

We have posted a separate article explaining why EOTs might now be a more attractive option to sellers given the CGT increases announced by the government – please see our article: Autumn Budget 2024: A tax-free sale to an EOT just got even more attractive.

What has changed?

The changes announced:

• Prevent selling shareholders (and individuals connected with them) from continuing to effectively control a company even after the sale to an EOT through control of the EOT.
• Require that the trustees of the EOT are UK resident at the time of the sale of the company to the EOT. 
• Require trustees of an EOT to take all reasonable steps to ensure the purchase price paid when an EOT acquires a company is no more than market value and that the interest payable on the purchase price does not exceed a reasonable commercial rate.
• Extend the period in which HMRC may withdraw CGT relief to the end of the fourth tax year following disposal if a disqualifying event (which is defined under the relevant EOT legislation) takes place.
• Increase the amount of information selling shareholders need to include in their claim for CGT relief. They will need to specify the number of employees of the company sold to the EOT and purchase price payable in relation to the sale.

The government has also introduced changes which mean that fewer HMRC clearance applications will need to be made in relation to EOT transactions. 

Finally, the government have made a small amendment to the rules concerning income-tax free bonuses that can be paid to employees of EOT owned companies. By way of reminder, if certain criteria are met, employees of EOT owned companies can receive up to £3,600 income tax free (such payments would still be subject to NIC). The government have changed the legislation so that bonuses will still qualify for income tax free treatment even if directors of companies are excluded from receiving the bonus. 

When do these changes take effect?

The changes apply from 30 October 2024. 

Do the changes reflect those proposed in last year’s EOT consultation?

The changes announced yesterday broadly reflect the changes that were proposed as part of the government’s EOT consultation last year. We wrote an article on the consultation: Government launches Employee Ownership Trust and Employee Benefit Trust Consultation.

How can we help?

If you want to discuss these changes, please contact John Kahn and Katie Harman. We have extensive experience advising on the tax legislation concerning EOTs and EOT transactions.