Capital Gains Tax Planning

Introduction: One of the most compelling reasons for selling your business to an Employee Ownership Trust (EOT) is the opportunity to exit completely free of Capital Gains Tax (CGT). Under current UK legislation, qualifying sales to an EOT are eligible for 100% CGT relief, meaning you could sell your business and pay no tax on the proceeds.

At EotOwl, we specialise in structuring EOT sales to ensure this powerful tax relief is secured, from
initial planning to post-transaction compliance. Our proactive approach to CGT planning safeguards
your entitlement and ensures that every condition is satisfied before you move forward.
Additionally, CGT relief could be withdrawn if there is a disqualifying event in the future. We
therefore ensure that risks are mitigated post-sale.

Why It Matters: It is worth noting that the 0% CGT benefit for EOT sales is not an automatic exemption. It’s conditional on satisfying a wealth of conditions set out in tax legislation. These conditions are not always intuitive, and misinterpretation or poor timing can lead to the loss of CGT relief.

Common issues that can put the CGT relief at risk include:

• The residency position, along with the composition of trustees.
• Improper voting or profit rights post-sale.
• Timing errors around share transfers or gifting.
• Failing to secure HMRC clearance before proceeding.
• Making changes to company status (e.g. ceasing to trade).
• The structure and terms of the EOT deed.

A single oversight can trigger a full CGT liability, which could mean a 24% tax charge on the tax gain.
It is therefore imperative that strategic, expert-led tax planning is essential. Our role is to ensure you
qualify for CGT relief, document everything properly, and avoid the common traps.