Employee ownership trusts

Employee ownership trusts are a method by which the controlling interest in a company can be transferred to a trust to be held for employees, and which brings with it some helpful, tax free bonus arrangements. 

Successful examples of this are John Lewis, Richer Sounds and Arup, but each employee owned company is different and the chosen structure should reflect the culture and ambitions of the organisation. Employee ownership trusts are usually used as an exit strategy for controlling shareholders but are an effective incentivisation tool. 

The trust must meet statutory conditions, and the transferring shareholders may sell their shares to an employee ownership trust and claim exemption from tax on all capital gains. Once transferred, the company can pay additional rewards to employees by way of tax free bonuses up to £3,600 a year. 

Key points

  • When creating an employee ownership trust the majority of the company’s ordinary shares will be transferred. Specific tax and legal advice is needed by the transferring shareholders, the company and the trustees acquiring the shares.
  • Communication with employees, trustees and the current shareholders is a vital part of this process and this should be built into the planning.
  • Original or family shareholders can stay involved through management committees or representation on the board of trustees.

RSM can provide universal support with employee ownership trusts, from setting up the trust to helping provide the optimum tax strategy, maximising the benefits of the trust to your business both as an employee and an employer.

For more information about employee ownership trusts please download our guide.