Is an EOT an EBT? Understanding the differences

What is an Employee Benefit Trust (EBT)?

An EBT is a discretionary trust established by the employer, which, for example, could hold shares in the company for the benefit of a certain group of employees, former employees, and some relatives and dependants – known as the beneficiaries of the trust. Unlike EOTs, EBTs can be extremely flexible and do not need to benefit all employees on equal terms, for example, an EBT could allocate shares to key employees only.

EBT’s are often set up in order to incentivise and reward key employees by encouraging loyalty and driving growth in the value of the company.

An EBT can act as a depository for shares held by certain employees and the trustees of the trust are only responsible for those particular shares. There is generally no change of control as EBTs typically hold less than 50% of the total share capital.

What is an Employee Ownership Trust (EOT)?

The Government decided to evolve the EBT into a specific vehicle called an Employee Ownership Trust (EOT).

EOT’s are more rigid than EBT’s with strict conditions needing to be met in order for the EOT transaction to benefit from certain tax incentives that have introduced in order to help promote employee ownership. The key tax incentives are the potential for a 50% capital gains tax exemption on the disposal of shares to the EOT and also tax-free bonuses to employees.

Specifically, an EOT is a trust that acquires shares in a company and holds them on behalf of the employees. It is an increasingly popular exit strategy for shareholders which offers attractive tax incentives and enhanced peace of mind over the future of the business, its culture and employees.

Our EOT advisers

We have advised many businesses to complete their transition to employee ownership. Hawsons have been working with businesses on EOTs since they were introduced in 2014, completing our first deal in 2016.

We are a member of the Employee Ownership Association who represent organisations that are employee-owned or transitioning to employee ownership across the UK.

Find out more about our EOT advisory service

Pete leads the Corporate Finance offering across the firm, having has spent much of his career within a large international accountancy firm and corporate banking before returning to Hawsons, where he started. Working with businesses of all sizes, Pete has an exceptional breadth of experience which he brings to the benefit of clients.

An early adopter and passionate believer in good employee ownership, Pete has helped numerous businesses transition to employee ownership and works extensively to promote the employee ownership model.