What do recent tax changes mean for Employee Ownership Trusts (EOTs)?

An Employee Ownership Trust (EOT) is a structure that allows a business owner to sell all or a majority part of their company shares into a trust that holds them for the benefit of all employees. 

In simple terms the concept is to allow the passing on of a business to the employees rather than selling it on the open market to a perhaps unknown third-party. 

EOTs provide both sellers and employees with preferential tax benefits. 

The scheme was introduced in 2014 to promote broader employee ownership in UK businesses, and its popularity has increased hugely since then, especially more recently. 

In 2021, seven years since the scheme was introduced, only 576 companies had moved to EOT status; in 2023 that number was 1,418 and by June 2025 it was estimated to be 2,470.  

Various government reforms have been introduced following a consultation within the Autumn Budgets of 2024 and 2025, which has reshaped the tax benefits and conditions attached to EOTs. 

The headline changes to date imply that the Government is seeking to prevent abuse of the scheme, as well as limit its appeal in order to ensure that the reduced government tax intake from EOT schemes – rather than business owners selling to third parties – is within reasonable parameters. By far the most notable recent change is the reduction of Capital Gains Tax Relief from 100% to 50%.

Previously, when a business owner sold shares to an EOT and met the qualifying conditions, 100% of the gain was exempt from Capital Gains Tax. This was a hugely generous relief, which is now cut in half. From 26 November 2025, only 50% of the gain on disposals to EOT trustees will exempt with the other 50% being treated as a chargeable gain for the sellers.  

Given the structure of an EOT sale relies heavily on the sellers accepting deferred consideration over often a lengthy period, this has created some uncertainty as to how and when the Capital Gains Tax would be payable.

The Employee Ownership Association, which represents the employee ownership trust environment, is in consultation with HMRC and the Department for Business and Trade to clarify a number of outstanding queries including:

1. clarity on how Capital Gains Tax is paid
2. what happens if a business doesn’t perform as well as expected and therefore deferred consideration is delayed or not paid at all

Further information with regard to such consultation can be found here.

Business owners selling to an EOT can still benefit from a generous Capital Gains Tax relief, but such sales will no longer be completely tax free after the November 2025 Budget.

Further clarification of the recent changes is likely to continue and would certainly be welcomed by business owners seeking to choose the EOT route over a third-party sale. 

Thomas Clark is a partner in the corporate and commercial team. He advises clients on a wide range of matters with a main focus on acquisitions and disposals.