If you’re thinking about whether you can sell your business to an Employee Ownership Trust (EOT), our quick, four question checker will help you determine if your company meets the criteria for sale to an EOT and qualifies for the associated tax benefits.
You don’t need to prepare. You just need basic information about your company structure, employee numbers, and shareholding details.
Company status
To qualify for the EOT tax perks the shares need to be sold by individual(s). If your trading company is owned by a holding company, and you own the holding company, you will need to sell your shares in the holding company to qualify. Learn more on our help page.
What type of shares do you plan to sell to the EOT?
Controlling stake
For your EOT transition to gain the associated tax benefits, you must sell a controlling stake (minimum 51%) of your business. This means even if you remain a shareholder, you'll no longer have ultimate control of the company. Learn more on our help page.
Will your EOT gain and retain a controlling stake (51%+)?
Profit sharing
In an EOT, to benefit from the £3,600 tax free bonuses, staff profit share must be split “equitably” across all eligible employees. This doesn’t necessarily mean every employee receives the same amount of profit share – but the system must not favour individuals. You can learn more about how profit share can be split on our help page.
Will the staff profit share be equitable?
Participator ratio
To gain the EOT tax perks, your business must comply with the participator ratio. Roughly speaking, you need at least five employees for every two shareholders. The correct participator ratio must be in place for at least 12 months before the date of the sale to the EOT. Add your information below and we’ll work out your ratio. You can find out more about this on our help page.
How many employees and shareholders do you have?
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Your eligibility results
Company status
You are selling shares owned by individual(s) to the EOT, one of the qualifying criteria.
Unfortunately, your proposed transaction does not qualify for the tax perks. The shares being sold to the EOT need to be in a trading company, or in the holding company of a trading group.
Companies can be structured in a variety of ways. Only individuals can benefit from the Capital Gains Tax relief when selling to an EOT; the shares must be sold by individuals – not companies.
In practice this means if the trading company you want to sell to an EOT is currently owned by another company (i.e. a holding company), you'd need to sell the shares in that holding company to qualify. This may not be ideal if the holding company also has other assets/companies which you'd like to keep outside the EOT. In which case you may need to liaise with your accountant about restructuring first.
Find out more about how company status effects your eligibility on our help page.
Controlling stake
Your plan to transfer 51%+ ownership to the EOT meets the controlling stake requirement.
The EOT needs to gain a controlling stake in your business – at least 51% to qualify for the EOT tax benefits. Potentially you can sell a minority stake, but you must accept you'll forgo the tax perks.
Learn about why the controlling stake is important on our help page.
Profit sharing
You’re planning a fair and equitable profit share. That’s one of the key criteria for an EOT sale.
If EOT profit share payments to staff don't align with the allowed “equitable” methods, they won't qualify for the £3,600 tax free element.
If you do press ahead, we can give clear guidance on what you can and can’t do with profit share payments.
Read more about profit sharing on our help page.
Participator ratio
Your participator ratio is
Your business meets the ratio of employees to shareholders needed for an EOT sale.
The participator ratio can be complex. This tool helps highlight clear passes/fails, but for borderline or rapidly changing situations, it's too simplistic. We'd recommend you discuss with a professional adviser, providing full details of the company's shareholders, employees, and family connections, both now and over the last 12 months.
- Staff on payroll
- Shareholders
- Significant changes in last 12 months
- Employees with share options
- Employees related
Your participator ratio is . Your ratio needs to be 40% or under for your business to qualify for the tax perks.
This can become complicated, but at its heart, it’s about the number of shareholders compared to the number of employees. If you have relatives of shareholders on the payroll, or staff with share options, your ratio will be affected. Superficially, it looks like you fail to meet the required ratio to qualify.
It may be worth discussing with your accountant to see whether this can be easily resolved but be aware you need to meet the criteria for at least 12 months prior to sale completion. Hence if, for example, you take on an extra unrelated employee today (or fire a family member!) just to meet the ratio, you’d need to wait 12 months before selling (and continue to be at or below the 40% threshold throughout that time) to qualify.
Get the lowdown on the participator ratio on our help page.
- Staff on payroll
- Shareholders
- Employees with share options
- Employees related
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