Employee Ownership Trusts (EOTs) have become one of the UK’s fastest-growing business succession models, with the Employee Ownership Association and WREOC reporting a 1,640 per cent increase in EOT-owned businesses in the past decade and 560 transitions in 2024 alone.
However, with the recent Autumn Budget announcing that Capital Gains Tax (CGT) now applies to EOTs, companies may question whether this particular structure is still worthwhile.
What is an Employee Ownership Trust?
An EOT is when a trust acquires a controlling interest (more than fifty per cent) of a company on behalf of its employees.
EOTs can allow employees to collectively benefit from the success of the business while owners reduce their involvement over time.
To qualify for EOT reliefs, the company must be a trading business or a holding company of a trading group.
Business owners may retain a minority shareholding or continue as directors, provided they do not control the trust.
Are EOTs still beneficial post-Budget?
In the latest Budget, Rachel Reeves announced that CGT relief on disposals to EOTs will now stand at 50 per cent – half of the previous 100 per cent relief.
From 26 November 2025, if you sell shares to an Employee Ownership Trust (EOT), half of the gain will be immediately subject to Capital Gains Tax (CGT).
The other half won’t be taxed at the time of the sale but will be deferred until the EOT trustees eventually sell or dispose of the shares in the future.
HMRC reported that the cost of CGT relief has increased significantly over the years, reaching £600 million in 2021/22.
With forecasts suggesting it could rise to more than 20 times the original cost, to £2 billion by 2028–29, the Chancellor decided to act.
Despite these changes, EOTs can still offer tax advantages, including tax-free bonuses of up to £3,600 per employee each year and no Inheritance Tax (IHT) implications for selling shareholders.
Employee ownership can improve incentivisation and retention due to increased involvement in the company.
Selling to an EOT can also avoid the uncertainty of third-party buyers and allow founders to protect the business’s identity and company culture.
Is an EOT right for your business?
Despite the reduced tax advantages, EOTs continue to offer a viable route for transitioning ownership to employees, preserving company culture and long-term stability.
However, business owners must now plan more carefully, considering the immediate tax implications, the deferred charges when trustees eventually sell, and the compliance requirements associated with this model.
If you would like to discuss the EOTs in more detail, or would like support with setting up an EOT, please contact our team of advisers.
