Autumn Budget Recap – New EOT rules and changes

Akshay Vaghela looks back at the Autumn Budget for key points for EOTs

• Extended vendor CGT clawback period – CGT clawback period extended four tax years after the tax year of sale.
• Trustee residency requirement– trustees must be UK resident. Offshore trustees previously used to ensure onward sale of company by EOT could be CGT free. This now breaches the relief requirements from 30th October 2024 onwards.
• Trustee independence requirement – excluded participators may not form a majority on the trust board. Any individual that holds or has held 5% of company share capital must be outnumbered as trustees or as directors on the board of the trustee company.
• Market value requirement - Trustees must take reasonable steps to ensure consideration paid does not exceed market value. Positive step to ensure EOTs are not overpaying to acquire businesses and employee interests are protected. Interest on deferred consideration may not exceed commercial rates.
• Relief for distributions to EOTs - Contributions/distributions to EOTs are now tax-free – the profession previously relied on a HMRC concession. This is now in legislation.
• Increased tax-free bonus flexibility - Company directors can be excluded from tax-free bonus payments. Not previously possible without breaching all employee benefit and equality requirements. Still at company discretion.
• Increased reporting requirements from April 2025 – claims for relief now require information on sales proceeds and number of employees to be included in CGT relief claims
• CGT and BADR increases – Entrepreneur’s penalised, EOT a shining light