As calls grow for the Government to introduce legislation to incentivise Employee Ownership Trusts in Ireland, a new analysis has been published assessing the impact of EOTs in UK since they were introduced in 2014.
‘Employee ownership trusts: an employee ownership success story’ – by Andrew Pendleton & Andrew Robinson, published in the International Review of Applied Economics – provides a valuable and perceptive review of the UK’s EOT story which demonstrates the overwhelmingly positive impact of the model for businesses and communities in the UK. The findings include:
- Rapid Growth: Since their introduction in 2014, Employee Ownership Trusts (EOTs) have rapidly expanded in the UK, with around 2,000 EOT-owned companies as of early 2025, making them the dominant model for new employee ownership transitions.
- Succession Tool: EOTs have become a favoured succession strategy for business owners due to tax advantages, transaction certainty, flexibility in post-sale roles, and the ability to preserve company legacy.
- Indirect Ownership Model: EOTs are structured around collective, trust-based ownership where employees benefit as beneficiaries but do not hold direct shares or equity.
- Minimal Employee Involvement in Setup: Employees often play little to no role in the conversion process; in about a third of cases, they are informed only at or after completion.
- Tax Incentives Drive Adoption: EOTs offer capital gains tax exemptions to owners selling a controlling interest, a major motivator, particularly after the reduction in Business Asset Disposal Relief in 2020.
- Profit Sharing is Common: Despite initial concerns, the majority of EOTs provide employees with annual profit shares (up to £3,600 tax-free), with 63% of EOT firms doing so in 2022.
- Durability and Performance: EOT firms report strong performance, often exceeding industry peers in profitability and productivity, with very few failures, mainly in low-margin sectors like construction.
- Governance Diversity: EOT governance structures vary; 78% include employee trustees, and in 26% of cases, employees form a majority on the trust board.
- Limited Regulation Risks Abuse: The EOT model allows considerable discretion to departing owners, raising concerns over inflated valuations or exploitative repayment terms. New 2024 regulations aim to tighten controls.
- Real but Varied Ownership: While not offering direct shareholding, EOTs provide many firms with mechanisms for employee influence, profit participation, and access to company information, though depth and effectiveness vary significantly.
IPSA Chair Marie Flynn said: “IPSA remains committed to working with stakeholders to ensure the recommendations of the 2024 Indecon Review are implemented and the Government legislates to make EOTs a workable and tax efficient option for businesses in Ireland.”
