Contractors still unaware of Employee Ownership Trusts despite its rising popularity as an ‘exit strategy’ for owners

Former construction company owners researching exit strategies have been found to have first heard about Employee Ownership Trusts (EOTs) through two main avenues – company accountants/advisors or through online sources, including social media.

A relatively new concept, the EOT model is a corporate structure whereby a company transfers a controlling interest to its workforce, becoming indirectly owned by its employees, through a trust.

Despite the initiative first being introduced into UK tax law in 2014, most former owners discovered the model from their peer network.

Interviews carried out by market researcher Ipsos for HMRC with trustees of companies operating under an EOT model, some of whom were former owners of the companies, revealed information on the model was found by accident, rather than by intentionally researching exit plans or ownership models.

Of those posting about EOTs, the companies had already successfully transitioned to an EOT model and were sharing their experiences in general conversation and at business conferences or networking events.

Other companies using an EOT model also remained sources of information about EOTs for former owners during their own, six month to two-year average, transition period.

While some also mentioned social media as a source of information for them – LinkedIn, in particular.

Former owners also hired advisors and consultants, who specialised in EOT models, to provide advice and guidance.

The model has gained popularity among predominantly family-owned and operated construction companies, as a way to keep their businesses trading after they step aside, such as for retirement, while promoting an employee-centric culture under its incumbent stakeholders.

The research also found that transitioning to the model helped to maintain employee engagement and build on positive company cultures and values.

It is also considered to provide stability when a company owner steps away, helping staff retention were there to be a more immediate change of ownership.

Other highlights from the research included:

• EOT model’s 100 per cent capital gains tax relief reported as having the most impact.
• Tax-free employee bonuses were viewed as a ‘nice to have’. However, trustees who were not former owners, saw it as important for employees.
• Inheritance tax (IHT) relief was considered to be the least important – it also appeared to be the least well known benefit.

Companies which have recently transitioned to an EOT model include construction and fit-out company Gilbert-Ash, steel bridge specialist, Nusteel Structures Limited, and specialist contractors in construction, demolition and regeneration, John F Hunt Group.

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