Using a new-style ‘Employee Ownership Trust’ (as described in Chapter 24) as a vehicle for the purchase and holding of a controlling interest in a trading company in a manner which allows the vendor(s) to claim complete exemption from capital gains tax on the disposal, is, by all accounts, proving of interest to a broad range of owner-managed businesses as an alternative to an exit by way of a trade sale. Problems and uncertainties remain in relation to the structuring of the funding of the trust if, as is often the case, the agreed purchase price is to be paid in instalments out of future profits of the company. Quaere: will a payment by the company to an EOT which holds all of the issued share capital be treated as a taxable distribution in the hands of the trustees? Will such a contribution give rise to a charge to inheritance tax payable by the trustees? Will interest payable on a third-party loan to the trustees be deductible as an allowable expense (on the part of the company) if it is funded by the company? HMRC guidance on these and related issues would be appreciated to avoid the difficulties imposed by uncertainty of tax treatment.

A number of other companies which are already controlled by an employees’ trust are looking to take full advantage of the opportunity to pay bonuses of up to £3,600 per annum to all group employees on an ‘equal terms’ basis. The provisions of s236L TCGA 1992 allow companies already controlled (or which become controlled) by an existing s86 employees’ trust to qualify to pay such bonuses provided they have satisfied a ‘behaviour test’ throughout the past 12 months. For more details, see the newly released Chapter 24.

EOTs are described in more detail in the new Chapter 24. A draft trust deed for an EOT will be published in Release 39.