Although few owners of family businesses want to sell, if a decision is taken to sell the business, a recent announcement in the Chancellor’s Autumn Statement may be of interest. The Government announced that as a further incentive to employee ownership, a new tax break will be established providing a complete exemption from capital gains tax where a controlling interest in a company is sold to a trust holding shares for the benefit of the employees.
Why would a family want to transfer a controlling interest to an employee trust? It could be that the family is seeking a partial exit and would prefer to keep ownership within the community of family and employees rather than introducing a third party “outsider” who may not share the same long term aims for the business. In these circumstances a partial sale to an employee trust provides a tax free way of realising value on some of the shares, while allowing the family to ensure the longevity of the family business and its ethos for the benefit of the employees.The family could retain a very substantial stake in the business and day to day involvement and would have ensured, through the terms of the employee trust, that the spirit of the business would be preserved.