Employee Ownership Trusts (EOTs) have continued to grow in popularity, largely due to the significant CGT relief available to business owners, while also offering the added benefits of supporting employees and preserving company culture.
As Jim Truscott, Partner in the Corporate Teams at Beyond Corporate, explored in depth last year, EOTs bring together commercial, cultural and tax advantages. You can revisit his earlier analysis for Insider Media here:
https://www.insidermedia.com/experts/north-west/Employee-Ownership-Trusts-Where-are-we-now
However, the Government’s November 2025 Budget introduces a significant change to one of the key tax reliefs that has supported this growth.
What is an Employee Ownership Trust (EOT) and how is it set up?
An EOT is a type of employee benefit trust introduced in 2014 to encourage long-term employee ownership. Under this structure, a controlling shareholding (51% or more) is transferred to a corporate trustee, who holds the shares for the benefit of eligible employees. The trust operates under a trust deed and is designed to give employees an indirect ownership stake, usually without changing the company’s day-to-day management.
Setting up an EOT typically involves transferring the majority shareholding to a trustee company and establishing the trust deed. The day-to-day management generally remains with the existing board, although companies may also appoint an employee trustee or establish an employee council to represent staff interests. Most EOT transactions are funded through deferred consideration, meaning sellers are paid over time from the company’s future profits.
What were the traditional benefits of an EOT?
Before the 2025 Budget changes, the main tax benefits included:
- Capital Gains Tax (CGT) Relief – Sellers transferring shares to an EOT could claim 100% CGT relief, meaning no CGT was payable at the point of sale.
- Income Tax Relief for Employees – Employees could receive up to £3,600 per year in income-tax-free bonuses.
- Inheritance Tax Advantages – Transfers to an EOT could be exempt from inheritance tax, and the trust avoided ongoing “relevant property” inheritance tax charges that apply to most discretionary trusts.
These benefits, combined with cultural and commercial advantages, fuelled the rise in EOT structures across the UK.
What has changed in the November 2025 Budget?
Under the updated 2025 Budget rules, disposals of shares to an Employee Ownership Trust (EOT) will now only receive 50% Capital Gains Tax (CGT) relief.
- 50% of the seller’s gain is immediately chargeable at their applicable CGT rate
- The remaining 50% is deferred, and only taxed if the EOT later disposes of the shares
What should companies consider – and is an EOT still worth it?
Businesses should be aware that most EOT transactions rely on deferred payments from future profits, which can affect growth and lender appetite; trustees and leadership must understand the responsibilities of employee ownership; and that any deferred CGT becomes payable if the company is later sold.
The incentive for opting for an EOT is reduced but not removed. Paying CGT on only half the gain remains a compelling tax advantage, especially against a backdrop of increased CGT rates elsewhere.
Many sellers may still favour EOTs because they provide 50% CGT relief while offering a values-driven exit that preserves the company’s independence and culture, enhances employee engagement and productivity (including tax-free bonuses), and avoids the need for an external buyer. These benefits remain significant despite the reduction in tax relief.
How we can help
The updated EOT rules make careful planning more important than ever.
At Beyond Corporate, our specialist Corporate Team has extensive experience helping business owners navigate the implications of transitioning to employee ownership. Whether you’re exploring feasibility, assessing the impact of the new CGT rules or moving towards implementing an EOT structure, we can support you at every stage.
To discuss your plans or obtain tailored advice, contact us at [email protected].
