Skip to content


Employee-owned companies – barriers to adoption


Should employee trusts be allowed to exist in perpetuity?

The government has called for evidence of how any
non-tax laws have a disproportionate effect on employee-owned businesses
and what might be done to reduce the complexity of employee ownership.
In particular, evidence is sought of the extent to which the application
of the current ‘rule against perpetuities’ (which prevents an
employees’ trust from being established in perpetuity) acts as a
deterrent to businesses moving to employee ownership. Views are sought
as to the possible application of an exemption from the rule in relation
to the interest of each individual employee (although as an employees’
trust is generally for the benefit of a class comprising past, present
and future employees, it is unclear how this would work). Other
questions include: if the rule is to be relaxed, should existing trusts
be able to ‘opt-in’ to the exemption, how should those trusts which
qualify be identified, and what unintended consequences might there be
of any such change ? Responses should be sent to so as to be received by 19 February 2014.

In the our experience, remaining barriers to the
adoption of ‘employee-owned’ structures in those instances in which it
is considered by the existing proprietors to be commercially
appropriate or otherwise desirable for non-commercial reasons (such as
personal beliefs), are largely tax-related. For example, the penal
application of the charge to tax on ‘loans by a close company to
participators’ such as an employees’ trust and the charges to CGT and
inheritance tax which can arise on transfers to, or out of, an
employees’ trust. Some of these may be addressed by the proposed new
reliefs from CGT upon disposals of shares resulting in a company being
held by an ‘employee ownership trust’ and the proposed conditional
exemptions from inheritance tax for transfers of shares or other assets
to such a trust.

Related Resources