UK Increases Incentives for Owners to Sell to Employees

The Chancellor of the United Kingdom, George Osborne, announced in early December that the government would increase the allocation of funding to support employee ownership from the £50 million ($82 million) in the budget to £75 million ($123 million). The funding will support a form of employee ownership similar in some ways to US ESOPs. When business owners sell shares to a qualified employee trust, and the resulting ownership by the trust amounts to a controlling interest in the company, the sellers will receive relief from taxation on their capital gains.

The funding also specifies that staff in qualifying employee-owned businesses will be able to receive up to £3,600 ($59,900) annually in bonus payments tax-free. This provision is because some employee-owned businesses in the UK, such as the John Lewis Partnership and Tullis Russell, are indirectly employee-owned, with the shares being held in a perpetual trust. Unlike US ESOPs, employees in such companies do not receive shares when they leave the company, and they cannot receive dividends since they are not direct shareholders. Instead, they receive bonus payments.

Iain Hasdell of the UK's Employee Ownership Association said that the expanded initiative "marks another key step towards our target of 10% of GDP being delivered by employee-owned businesses by 2020."