Do I qualify for EOT?

Do I qualify for an EOT?

In order for a sale to an EOT to qualify, there are five key conditions to meet - both before the sale and for a set amount of time afterwards. If the EOT fails to meet or maintain the qualifying conditions, a tax charge would be triggered either for the exiting shareholders, or for the trust. It is therefore important that all parties understand these requirements, and we can support you with this. The key conditions, briefly, are:

1. The company whose shares are transferred must be a trading company or the principal company of a trading group.

2. The trustees of the EOT must ensure all eligible employees receive benefits from the trust on “the same terms”, but trustees may distinguish between employees on the basis of remuneration, length of service, hours worked etc.

3. The trustees must retain, on an ongoing basis, at least a 51% controlling interest in the company.

4. The number of continuing shareholders (and other 5% participators) who are directors or employees, and any persons connected with them, must not exceed 40% of the total number of employees. This can include option holders and holders of growth shares, so particular care should be taken to build a flexible position from day one to allow for ongoing or future employee incentive schemes.

5. The selling shareholders must be UK tax resident individuals.