Tax Free Company Exits; Employee Ownership Trusts, EOTs, can allow Owner Directors to sell their companies without paying any Tax.
Before April 2020, subject to meeting certain criteria, director shareholders could sell their shares and only pay 10% on gains up to a lifetime limit of £10m. That was the Entrepreneurs Capital Gains Tax Rate. A £10m capital gain would only have been subject to £1m of taxation. On 6 April 2020 those lifetime gains were limited to £1m and this tax break was renamed “Business Asset Disposal Relief.”
and the lifetime gains limit was reduced from £10m to £1m, thus exposing the other £9m of gain to capital gains taxes of 20% or more.
Since that date Employee Ownership Trusts have tripled in the UK, setting new records each year. 148 in 2020, 285 in 2021 and 332 in 2022. Exits via EOTs offer a 0% Capital Gains Tax to exiting owners and allow the EOT to pay Employees tax free annual bonuses of up to £3,600 per year. These bonus payments would still be subject to National Insurance.
Since 6 April 2020, 100% of the corporate exits that I have encountered have been via EOTs.
I am the Senior Course Leader for the Finance for Non-Finance Directors courses of Excellence in Learning. The next scheduled In Person courses that I will be delivering will be held at the London Heathrow Renaissance Hotel and at the Birmingham NEC Crowne Plaza Hotel. There are also Live Online Courses that are typically delivered every second month. These and all other Excellence in Learning courses are limited to a maximum of 8 Directors, to ensure that the Directors attending get the maximum benefit from their time.
Phil Arnold FCA, FIC, FIoD and Chartered Director