Children’s services and Employee Ownership Trusts
In our experience representing sellers within the children’s services market, we have observed a growing interest in sales to Employee Ownership Trusts (“EOTs”).
What is an EOT?
An EOT is a specific type of Employee Benefit Trust that benefits from various tax reliefs. In short, EOTs allow a company’s employees to indirectly own a controlling stake in the company through a trust, which holds the company’s assets on trust for the benefit of its employees.
A seller of shares to an EOT is potentially eligible for relief from capital gains tax, which can make for an efficient exit from the children’s services market.
In addition, a company controlled by an EOT is able to pay an annual tax free bonus of up to £3,600 per employee.
In a market such as children’s services (including children’s homes, supported accommodation providers and fostering agencies) which is heavily reliant on attracting and retaining committed staff, EOTs are proving to be an increasingly popular option for operators that are looking to (1) incentivise their existing and future workforce and (2) exit (or partially exit) the market whilst aiming to create a long term sustainable operational model.
There are certain qualifying conditions that must be met, including:
- The company must be a trading company or part of a trading group
- The EOT must make assets available for the benefit of eligible employees on equal terms (albeit, a differentiation between employees on objective matters such as length of service and hours worked can be made)
- The EOT must hold a controlling interest in the company after the company is sold to it
Potential reform
The number of sales to EOT has increased significantly since their introduction over a decade ago. Whilst popularity for these trusts have risen, we’ve seen repeated Government concern that EOTs are not being used in the way they are intended – to encourage employee engagement.
Whilst the current Government has to-date avoided any changes to the EOT regime, future changes and/or restrictions remain a possibility. It is therefore crucial to take legal and tax advise from specialists if you are considering a sale to an EOT as part of your exit.
How we can support you
Our specialist Health and Social Care Team regularly advises providers of all categories on acquisitions and sales in the children’s services sector, including sales to EOTs. We will work with you and closely with your tax advisors to achieve a structure that works for you, to advise on and minimise any risk points and to ensure that the transaction progresses as smoothly as possible.
The Health & Social Care team at RWK Goodman is a recognised market leader, with in-depth knowledge and experience in the social care sector. Based across London, Thames Valley and the South West, our team of lawyers are fully immersed in social care, which enables us to cut to the heart of urgent matters quickly, and help you plan for what may lie ahead.
Our aim is to get to know your business and become the strategic advisors you trust to provide insightful, pragmatic solutions. Our clients include nursing and residential homes, hospices, homecare agencies, supported living, specialist colleges and children’s services and our advice covers many areas.
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