What's Happening?
Employee-ownership trusts (EOTs) are becoming a popular exit strategy for construction contractors, offering tax benefits and legacy protection. The UK capital gains tax rate changes have prompted more businesses to consider EOTs, which require selling at least 51% of the company to a trust for employees. This model promotes loyalty and continuity, providing tax relief and income tax-free bonuses for employees. However, EOTs come with risks, such as repayment strains and leadership succession challenges.
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Why It's Important?
EOTs offer construction firms a way to preserve legacy and reward employees while avoiding third-party sales. The tax advantages can be significant, but businesses must carefully plan to mitigate risks associated with tight margins and cyclical revenue. The model can enhance talent retention in an industry facing labor shortages, providing a competitive edge. However, firms must ensure robust financial and leadership planning to avoid pitfalls and maximize the benefits of employee ownership.
What's Next?
Construction firms considering EOTs must conduct thorough reviews of financial forecasts and leadership plans. The October 2024 Budget introduced new rules to prevent misuse of EOTs, requiring market value share prices and limiting former owners' influence. Firms must align culturally and financially to succeed with this model, treating it as a serious structural change rather than a tax workaround.
