A tax regime was introduced in 2014 to allow company owners to sell their companies to trusts that are run for the benefit of the employees. Overall, the regime has worked well but several changes were proposed by HMRC in a consultation document to ensure the regime better meets its objectives.

The first main area of proposed reform is to introduce additional requirements relating to the characteristics of the trustees. In its response, ICAEW’s Tax Faculty supports the proposal that less than half of the trustees should be former owners of the company (or persons connected with them). 

The Tax Faculty also agrees that employee ownership trusts should be UK tax resident. This should ensure that such trusts are not used to avoid capital gains tax when company shares are sold into and then out of the trust. 

The faculty points out that some existing trusts may currently fail to meet these tests. It suggested that a grandfathering period of 12 months may be required to allow sufficient time for these trusts to become compliant. 

The consultation document sets out a few technical changes designed to streamline clearance procedures and prevent unintended tax consequences on the transfer of shares into the trust. The faculty welcomes these changes as it considers that they will bring much needed simplification and certainty to company owners and their employees. 

Finally, the faculty considers that the tax benefits derived from the employee ownership trust model are skewed more towards the former owners than to employees. It therefore proposes an uplift of the annual tax-free bonus of £3,600 available to employees. It also suggested the introduction of a tax exemption on transfer of benefits from the trust to the beneficiaries on disposal of company shares if those shares were held for a period of at least six to ten years. 

Read ICAEW’s response 

ICAEW’s Tax Faculty is recognised internationally as a leading authority and source of expertise on taxation. The faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.


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