The 2025 Autumn Budget introduced significant changes to Employee Ownership Trusts (EOTs), which will impact business owners considering succession through an employee ownership structure.
Our tax team outline the updates announced during the budget and what this means for those looking to transition to an EOT.
What is an Employee Ownership Trust?
Employee Ownership Trusts, known as EOTs, were introduced back in 2014 to encourage indirect employee ownership of trading companies.
To incentivise transitioning to an EOT, two tax reliefs were introduced, these being:
- 100% relief from Capital Gains Tax (CGT)
- Up to £3,600 per year could be paid to employees as a tax-free bonus
For a full breakdown of what an EOT is, read our previous article here.
However, updates announced in the 2025 Autumn Budget have changed the CGT relief available on disposals to EOTs.
What happens during the sale to an EOT on or after 26th November 2025?
Where a company is sold to an EOT on or after 26th November 2025, full relief from CGT on the sale shares to an EOT is no longer available. The CGT relief has been reduced from 100% to 50% from this date, resulting in an effective CGT rate of 12%.
When selling to an EOT, it is often the case that payment of the consideration is spread over a period of 3-10 years. Usually, the company that has been sold will make an initial cash contribution to the EOT, which is then used to pay the selling shareholders. Depending on the amount of the payments received before the normal due date for the CGT by the selling shareholders, it may be possible for them in certain circumstances to pay any CGT that arises to HMRC in instalments.
Business Asset Disposal Relief (BADR) and Investors Relief (IR) are not available on the chargeable gain.
Commercial reasons for selling to an Employee Ownership Trust
Whilst the tax relief available on such a sale has been reduced, there are still many commercial reasons for transitioning to an EOT structure. These include succession planning and securing the independent future of the business to name a few. The employees of the company also stand to gain as they become the indirect owners of the it due to the ability to pay up to £3,600 as a tax-free bonus as outlined above. It should be noted however that these bonuses are not free from National Insurance.
Get in touch
EOTs remain a popular succession planning choice for companies, especially in the current economic climate. Get in touch with a member of our Tax team today and read our most recent EOT deal to see how we can assist in the transition of your business.
