Employee Benefit Trusts

EBTs are discretionary trusts set up for the benefit of employees. They are frequently operated in conjunction with share plans:

  • To provide an internal market for shares in a private company
  • As a ‘warehouse’, to hold surplus shares which can be gradually passed on to employees through share plans
  • To deliver existing shares, bought on the market, as part of a share plan as an alternative to issuing new shares

Employee Share Ownership Trusts

The Employee Ownership Trust (EOT) is an extension of the traditional employee benefit trust, but with distinctive features and tax advantages.

Unlike an EBT, which will typically only hold a minority of the issued share capital, the purpose of the EOT is to hold a majority stake in the business on behalf of all its employees and provides an incentive for owners to sell a controlling stake in their business.

In terms of tax exemptions, there is the possibility of a complete capital gains tax exemption on the original sale of shares into the EOT, as well as some small advantages in respect of some exemptions from income tax (but not national insurance) on bonus payments out of the trust to employees.

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