Combining an employee ownership trust with a share incentive plan

Employee ownership trusts (EOTs) were introduced in FA 2014 Sch 37. They were created in response to the Nuttal Review of Employee Ownership published in July 2012. While few business owners initially chose to sell their companies to EOTs by 2020 they were becoming increasingly popular. A criticism of EOTs almost from their inception was that despite being extremely generous to departing sellers the financial benefits for the employee-beneficiaries were comparatively limited.

From a seller’s perspective TCGA 1992 s 236H states that as long as the relief requirements are met and a claim is made a sale of shares to an EOT takes place on a no-gain no-loss basis meaning no capital gains tax (CGT) is payable for the departing shareholders. Compare this with a sale to a third party where CGT could be at...