The measure

The Government has previously confirmed its support for employee ownership as a business model. In Budget 2013, the Government announced an intention to introduce an exemption from the capital gains tax charge arising where a business owner disposes of a controlling interest in their business to an employee controlled structure, e.g. an employee benefit trust (EBT). The Government has today introduced an accompanying inheritance tax exemption on the transfer.

Following an HMRC consultation, the Government has also announced an intention to introduce a tax exemption for bonuses paid to employees working for this business structure. Up to £3,600 per annum can be paid in this way to each employee.

Who will be affected?

The measure will be relevant to all companies that are interested in developing an employee ownership structure. It will also be of interest to business owners who are looking at selling a controlling interest in their business.


The provisions will apply with effect from the 2014/15 tax year.

Our view

Having previously recognised that indirect employee ownership is good for UK business, it is encouraging to see the Government commit resources to further develop this model. In practice, we do not expect there to be many companies for whom this ownership model would be appropriate. However, where it is feasible, the tax exemptions are relatively generous.

Questions still remain. For example, where a business owner wishes to sell a controlling interest to an EBT, how will the EBT be funded? It will be interesting to see how these arrangements develop in practice.

As regards the inheritance tax, we would often expect an IHT exemption to be available for a transfer of a controlling interest to an EBT. However, for those situations where an exemption would not already be available, the proposed change is welcome.

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