Scottish law firm Gilson Gray LLP has recently completed its first Employee Ownership Trust (EOT) arrangement – believed to be the first of its kind in Scotland.
EOT was introduced by the Finance Act in April 2014 as an innovative way of encouraging businesses to become employee owned through enhanced tax benefits.
Gilson Gray advised Mike Stoane Lighting on the introduction of an EOT. The deal saw 45 staff in the Edinburgh-based business benefit. The company now has an employee on the board of directors, following the decision by founder Mike Stoane, to step away from the day-to-day running of the business.
Derek Hamill, Head of Corporate at Gilson Gray, said the UK government encourages employee ownership because businesses tend to be more successful, competitive, profitable and sustainable if employees are engaged within the business.
He said: “Until now, the people who own a business, the shareholders, would have paid capital gains tax on what they made from their share sale.
“The lowest rate available has been 10%, provided the seller qualifies for entrepreneur’s relief. However, as an incentive to allow the creation of EOTs, a transfer of shares into the Trust qualifies for a full exemption from capital gains tax – the seller pays no capital gains tax at all.
“Other benefits include an exemption from inheritance tax in a transfer of shares and other assets into an EOT, and corporation tax deduction payments for bonuses.”
The EOT at Mike Stoane Lighting now holds a majority of the firm’s shares at 65%.