BUDGET 2024: Trimming the fluff and the baggage – EOTs and EBTs
Andy Wood • November 1, 2024
BUDGET 2024: Trimming the fluff and the baggage – EOTs and EBTs
It seems odd to group these things together.
Employee Ownership Trusts are warm and fluffy. Encouraged by government to increase employee ownership. A cynic might say loved by business owners looking for a tax efficient exit.
Whereas Employee Benefit Trusts are the thing of nightmares. They carry more baggage than an average Swissport employee.
But they are very much cut from the same cloth.
Budget 2024 announced restrictions in the application of both.
Let’s take a butchers.
Employee Ownership Trusts (“EOTs”)
What is an EOT?
Employee Ownership Trusts (EOTs) were introduced under the Finance Act 2014 to promote indirect employee ownership by allowing employees to collectively own shares through a trust.
In theory, this model incentivises employees by enabling them to benefit from the company’s success, which can enhance employee motivation, retention, and overall company growth.
In addition, and of interest to the business owner, EOTs come with specific tax reliefs: capital gains tax (CGT) relief on share disposals, inheritance tax (IHT) relief, and income tax relief on employee bonuses.
The CGT relief allows owners to transfer a controlling share (over 50%) of their business into an EOT without triggering CGT, provided the company meets certain conditions, such as being actively trading and equally benefiting all employees.
It is not an exemption, but a form of holdover relief. Meaning the trustees essentially pick up the tab for the historic gain when they come to sell.
IHT relief is also available for shares transferred into an EOT, making it exempt from charges typically associated with trusts. With the restrictions to BPR announced in the Budget, this might become more attractive for new EOTs going forward.
Additionally, employees of EOT-owned companies can receive annual bonuses up to £3,600 tax-free. regulations, professional advice is recommended for companies considering this structure.
The changes to EOTs in summary
The Chartered Institute of Taxation, for some reason, has had a bee in its bonnet about EOTs for the last few years and it might be said these changes are, at least in part, down to their lobbying.
- Control: There will be a restriction on former owners (and those connected with them) from retaining control of companies' post-sale to the EOT by virtue of control (direct or indirect) of the Trust. This will be a problem for vendors who want to control from beyond the sale.
- Trustees must be UK resident: This means that the trustees cannot benefit from a tax-free eventual sale by being non-resident. As such, this ensures that the CGT relief is merely a deferral and not avoidance. The trustees will pick up the tab which will, ultimately, be borne by the employee beneficiaries.
- Fair market value consideration: the trustees must take reasonable steps to ensure that the consideration paid to acquire the company shares does not exceed market value. I am amazed that trustees are not already doing this.
- Clawback period extended: the ‘vendor clawback period’ if the Employee Ownership Trust conditions are breached post-sale, will now not end until the fourth tax year following the end of the tax year of disposal
- Reporting: the claim for CGT relief must include details of the sale proceeds and the number of employees of the company at the time of disposal
- Income tax distributions: Legislation will clarify that certain payments, including where the company makes payments to the trustees to repay consideration left outstanding to the vendors, is not taxed as a distribution.
The changes had immediate effect (e.g. for disposals to the EOT from 30 October 2024 onwards).
Employee Benefit Trusts (“EBTs”)
Introduction
Darkness descends. A wolf howls in the distance. A shiver runs down your spine. Yes, its EBTs folks.
However, despite their use for PAYE and corporation tax, EBTs have remained interesting for capital tax planning reasons – whether for IHT purposes of CGT purposes.
The shares in a genuine business (note, not necessarily trading) could be transferred to an EBT (without the bells and whistles of the EOT) without it being a transfer of value and without an immediate CGT charge where certain conditions were satisfied. These conditions being less onerous than the EOT.
Again, with the curtailing of BPR and BADR, they will remain so in the future. However, one will need to be more and more careful, and the scenarios they will be appropriate have probably reduced somewhat as a result of the Budget.
Let’s take a peep… from behind the sofa.
The Budget 2024 changes
The changes can be summarised as follows:
- ensure that the restrictions on connected persons benefiting from an Employee Benefit Trust must apply for the lifetime of the trust
- restrict the Inheritance Tax exemption to where the shares have been held for two years prior to settlement into an Employee Benefit Trust — where there has been a share reorganisation, the shares previously held will be taken into account in considering the two-year holding period
- ensure that no more than 25% of employees who can receive income payments should be connected to the participator in order for the Employee Benefit Trust to benefit from favourable tax treatment
The first of these is unlikely to be a problem – other than for pretty egregious planning which has already been fingered by the GAAR Advisory Panel.
You could probably say the same about the second one.
The third may have more practical reasons and is likely to mean that EBTs, for these purposes, will have to be used for businesses which have, and are prepared to benefit, a more diverse cohort of employee beneficiaries.
If you’ve missed your Corporate Tax registration deadline or already paid the AED 10,000 fine, there’s now a golden opportunity to waive or reclaim that penalty — but only if you act quickly. In a recent move to support businesses during the first year of the UAE’s Corporate Tax rollout, the Federal Tax Authority (FTA) has announced a limited-time grace period. The initiative allows eligible businesses to apply for a full penalty waiver if they file their Corporate Tax return early. This is a major relief for thousands of companies who have either: Missed their Corporate Tax registration deadline, or Registered late and were hit with the AED 10,000 fine Why is this happening? According to Gulf News, this initiative is part of a broader effort by the Ministry of Finance and the FTA to ease the transition into the new Corporate Tax system and promote long-term compliance. What You Need to Know: Deadline for the waiver: July 31, 2025 BUT: You must file your return well ahead of your official tax deadline to qualify. Don’t wait – gathering your financial records and preparing your tax return can take time. For most businesses operating on a calendar year basis (Jan–Dec), that means filing within the next couple of months. Who qualifies for the penalty waiver? If you’re asking: “Can I get a refund on my Corporate Tax late registration fine in the UAE?” “Is it possible to waive the AED 10,000 Corporate Tax penalty?” “How do I apply for the UAE Corporate Tax penalty relief?” Then the answer is – yes, you may be eligible. But there’s a catch: you must file your tax return early, ahead of your normal deadline. This is not automatic, and if you miss the window, the fine will not be waived or refunded. Why early filing matters: The FTA has made it clear: early compliance is the only route to relief. This means: Completing your Corporate Tax registration (if not already done) Preparing your financials for your first tax year Submitting your Corporate Tax return well before the deadline This one-time waiver won’t be repeated – so don’t leave it until the last minute. How Mosaic Chambers Group can help: At Mosaic Chambers Group, our FTA-certified tax advisors and legal consultants are ready to guide you through the entire process. Whether you need help: Understanding your eligibility Filing your Corporate Tax return early Claiming your AED 10,000 fine refund Or ensuring future tax compliance We’re here to take the stress out of Corporate Tax. Book a free consultation today and get expert support from our team. Click here to get in touch or below to book your call.
April 6th, 2025 marks the beginning of a major shift in UK taxation. Labour’s new tax reforms have officially scrapped the long-standing non-domiciled (non-dom) tax status — a move that targets wealthy individuals who live in the UK but, under the new non dom regime, have been able to mitigate UK tax on their overseas income and gains. This change spells the end of a tax break that attracted many high-net-worth individuals (HNWIs) to the UK and is already causing ripples across the country’s elite financial circles. The message is clear: if you live here, you pay here. Let's break down what has changed. What Was the Non-Dom Tax Regime? The non-dom tax regime allowed individuals residing in the UK, who claimed their primary home (domicile) to be outside the UK, to avoid UK income and capital gains taxes by not bringing any foreign earnings or gains back into the UK. This system made the UK an attractive location for individuals with international earnings. We covered this in more detail here. What Has Changed? Since 2025-26 tax year, the government has implemented several significant reforms. These reforms include: 1. End of Non-Dom Status All UK tax residents will now owe UK income tax on all global income and gains, regardless of whether these were brought into the country or not. 2. Inheritance Tax (IHT) on Foreign Assets Non-doms could previously avoid UK Inheritance Tax on assets they held outside the UK; now individuals who have lived here for more than four years will be liable for IHT on all their global estate assets. 3. Temporary Reliefs To assist the transition, temporary measures include the following: Tax Year 2025-26 will see a 50% reduction on foreign income tax. Capital Gains Tax (CGT) laws allow us to rebase overseas assets based on their value as of April 2019 for CGT purposes. Temporarily, bringing money from abroad may not incur full tax charges upon entering the UK. Why Has the Government Made These Changes? According to Labour, eliminating non-dom status will provide many advantages: Enhance tax fairness Raise extra funds to support public services Close longstanding loopholes used by the wealthy Rising Tax Bills HNWIs with overseas assets and income will now face significantly increased tax obligations that may have an effect on personal finances, family planning and wealth transference. Making Decisions About Moving Abroad Some individuals are already leaving the UK in order to settle in countries with more advantageous tax regimes. Some common destinations for relocation include: United Arab Emirates (UAE) does not levy income or capital gains tax Switzerland provides fixed annual tax arrangements for its most wealthy citizens Italy - flat tax of EUR100,000.000 on foreign income for new residents Monaco does not levy personal income tax for residents Concerns Raised About Impact Within Industry Concerns are being expressed that this could lead to a decrease in: Investment into UK businesses Jobs funded by private wealth Donations to UK Charities What About Entrepreneurs? Many entrepreneurs utilise non-dom status to reduce tax on international business earnings, however, these changes could require: Establishing headquarters or structures outside the UK Reconsider ownership of intellectual property or company shares An investigation of how profits and dividends are managed is important to ensure long-term growth. What Should Be Done Now? If you or those you work with have been affected, taking immediate steps is key to their safety. Here are a few things you can do. 1. Consult With A Specialist Tax Advisor Every situation varies. Seek tailored guidance from someone familiar with both UK and international tax regulations. 2. Evaluate Your Financial Structures Evaluate how you hold assets - for instance through offshore companies or trusts. Any necessary changes must be implemented for optimal efficiency and compliance purposes. 3. Consider Relocating If the UK's new tax rules no longer suit, you might wish to explore living elsewhere where tax liabilities would be lower. Be sure to carefully consider all legal, financial, and family aspects prior to making any decisions. Summary The changes to the non-dom tax regime mark a profound transformation for those who rely on global income and wealth for tax payments, especially those living abroad. Although intended to increase fairness, these reforms also pose challenges to those accustomed to using it. Now is the time to review your plans, secure your assets, and seek professional guidance. How Can We Assist? At our offices in both the UK and UAE, we assist individuals, entrepreneurs and professional advisors in making well-informed decisions. If you have any queries about this article or need advice then get in touch.