Employee Ownership Trusts: from tax-efficient exit to strategic succession planning

Historically, generous tax reliefs have been available on the sale of a company to an EOT. However, these have been scaled back over recent years and changes announced in the Autumn 2025 Budget reduced the capital gains tax relief for disposals made on or after 26 November 2025 to 50% of the gain. Against that backdrop, where do EOTs now sit as an exit option for business owners?

What is an EOT? 

An EOT is a trust that holds a controlling interest in a company for the benefit of its employees. The existing owners will sell all or the majority of their shares to the EOT, which means that whilst the employees do not get a direct stake in the business, they will benefit through the trust. 

The purchase price must not exceed market value and should therefore be based on an independent valuation. It will generally become a debt owed by the EOT to the sellers at completion and the company’s future profits will be used to repay the sellers over time. 

An EOT is therefore more than an employee incentive arrangement: it is a succession mechanism that transfers long-term ownership internally rather than to a third-party buyer.

Do the tax changes alter the case for EOTs?

Recent tax changes have prompted many business owners to ask whether EOTs should still feature in succession planning. In our view, the answer remains yes. The tax position is less generous than it was but a sale to an EOT can still offer meaningful tax benefits for sellers in respect of the sale proceeds and employees through the availability of tax-free bonuses up to £3,600 per year. The more important question is whether those benefits align with a wider commercial rationale, including the desire to preserve continuity, culture and legacy.

When is an EOT the right choice? 

EOTs may be particularly relevant for owner-managed businesses where there is no obvious external buyer or where the owners are keen to preserve operational continuity and business performance. They can also appeal where owners wish to retain an ongoing role in the business through succession and development of future senior management. In this context, an EOT can provide a more structured and gradual transition of ownership compared to an immediate sale to a third party.

A sale to an EOT may not always deliver the highest headline price but it can offer a different kind of value: continuity for the business and a way to transfer a positive legacy to employees.

The sellers will need to accept deferred consideration, so EOTs are most compelling where the business is profitable and cash generative with a capable management team in place. If an immediate cash exit is required, an EOT might not be the best option. 

Conclusion: a more focused but firmly established option

The reduction in tax relief has narrowed, but not closed, the case for employee ownership. For the right owner-managed business, an EOT remains a serious succession option: one that can still deliver meaningful tax benefits while offering an alternative to an immediate transfer of control to new management. This can be especially important for owners who have devoted significant time and effort to building a successful business and defining its ethos, which may otherwise change or be lost entirely under new ownership, particularly in a private equity context. The key is to assess your priorities and to test the options early with proper advice on the legal, financial, valuation and tax considerations.