This year’s Autumn Budget introduced several notable changes to the Employee Ownership Trust (EOT) framework, adding new considerations for business owners evaluating their exit options. These updates may influence how attractive an employee-owned succession route feels, both from a tax perspective and a long-term cultural standpoint.
What are the tax changes announced in the 2025 Budget?
The 2025 Budget announced a 50% reduction in the Capital Gains Tax (CGT) relief available on the sale to an Employee Ownership Trust (EOT). This change took effect on 26 November 2025.
Impact of these tax changes
Capital Gains arising on the sale of shares to an EOT will now be taxed at 12% (half the main rate of CGT of 24%) rather than 0%.
Any CGT payable will be payable by 31 January following the end of the tax year of disposal. In limited circumstances, CGT can be payable in instalments where all the sale proceeds are not received immediately upon disposal of the shares. Consideration will need to be given in the deal structure to the cash flows required to meet this tax payment.
For gains benefitting from the 50% EOT relief, the gain is calculated as normal, with half of it being taxed now and the remaining half essentially being deducted from the tax base cost of the shares in the hands of the buyers (i.e. the EOT). This means that the half not immediately taxed would be taxed if the buyers sell the shares in future.
Would I be better off claiming Business Asset Disposal Relief instead?
In theory, a seller can choose to claim Business Asset Disposal Relief (BADR) instead of EOT relief. BADR currently results in a CGT rate of 14%, rising to 18% in 2026 for up to £1m of lifetime gains. At current rates, EOT relief results in a lower CGT rate and also preserves the BADR allowance for future disposals. You cannot combine EOT relief and BADR relief on the same disposal.
Based on current rates, we can't envisage any scenarios where you would claim BADR and not the 50% EOT relief.
Given the requirement to fund tax payments post-transaction, post-deal cashflows will need to be revisited for EOT sales that are yet to be completed. There may also be a requirement to consider changing the timing of deferred payments or raising external finance to provide sufficient headroom.
If I were considering selling to an EOT, should I now rethink?
We continue to recommend that business owners consider all exit options before deciding whether an EOT is the most appropriate method.
An EOT remains the most tax-efficient option, and has many other positive aspects, such as rewarding employees, preserving a business’s legacy, and certainty of exit. However, it is also important to consider the restrictions that an EOT has on the structure of the transaction and how best to motivate key management.
The benefits of a partial exit to an EOT may also now be worth considering in more detail. The negative tax consequences are now less of an issue.
Are there alternatives to selling to an EOT?
An EOT remains a very good vehicle for an exit. The alternatives, including trade sale, management buyout and sale to private equity investors, could be more appropriate options in some circumstances. We recommend taking professional advice at an early stage to ensure the pros and cons of each option are fully considered in conjunction with your personal and business objectives.
Tags: EOT
