Is an Employee Ownership Trust still a good exit option for business owners?

In the Autumn Budget, the government announced a major change to the tax relief for business owners selling to an Employee Ownership Trust (EOT). This came into immediate effect and for anyone in the process of selling to an EOT it was not a welcome announcement.

Richard Murray, Chief Commercial Officer at business growth advisors, Elephants Child, looks at what’s changed and considers whether EOTs are still a good option for exiting your business.

At a glance

• Capital gains tax (CGT) relief on the sale of a business to an EOT was reduced with immediate effect from 100% to 50% in the Autumn Budget.
• The announcement will increase tax costs, meaning sellers must reassess financial outcomes and compare EOTs with trade sales or private equity alternatives.
• The ‘right choice’ depends on priorities. However, EOTs still offer one of the most tax-efficient and culturally aligned exit routes for many owners.
   

What is an Employee Ownership Trust?

An EOT is a structure introduced by the UK government in 2014 that allows business owners to sell a controlling interest to a trust for the benefit of employees. It became popular because it offered continuity, employee engagement, and significant tax advantages.

Why choose an EOT?

Succession planning and continuity for the business and employees

EOTs can help to preserve the culture, identity and values of an organisation, and ensure stability for staff and clients. Employees gain a stake without needing to invest their own money; shared ownership can improve retention, engagement and loyalty, and staff can benefit from modest tax-free bonuses.

Simpler exit process

There’s no need to find a private buyer, no lengthy due diligence to go through, and the transition is less disruptive with a clearer timeline than choosing the route of an external sale.

Tax advantage

Pre-Budget this was greater, but selling to an EOT is still a very tax effective way for most people to sell.

What changed in the 2025 Budget?

The government reduced the CGT relief from 100% to 50% for EOT share disposals taking place after 26 November 2025. Sellers can no longer combine this with other reliefs such as Business Asset Disposal Relief. As a result, half of the gain is now taxable at standard CGT rates, significantly increasing the tax burden. There is now an effective 12% CGT rate on the proceeds of selling to an EOT, which still outperforms BADR and full CGT rates. Compliance requirements remain unchanged, including independent trustees, fair market valuation, and governance standards.

In short, EOTs are still attractive, but they are no longer as tax efficient as they were.

Do EOTs still make sense?

It can do yes, depending on your priorities. If preserving culture, rewarding employees, and ensuring continuity matter more than maximising personal proceeds, EOTs remain attractive. They still offer flexibility in structuring deals and can strengthen employee commitment. However, if your main goal is a high cash-out, the reduced tax benefit may make other options—such as trade sales or private equity—more appealing.

What should business owners do now?

Reassess your plans and priorities. Update financial models under the new CGT rules and compare alternative exit routes and how they fit with the legacy that you want for your business. If you proceed with an EOT, structure the deal carefully and seek expert legal* and tax advice early. Finally, communicate openly with employees to maintain trust and engagement throughout the transition.

Whether it’s the ‘right’ exit depends on what you value most.

Considering an EOT or reassessing your exit strategy after the Budget changes?

Speak to us today. We’ll help you evaluate your options, model the financial impact, and help design the exit route that best supports your legacy, your employees and your long-term goals.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

We work in conjunction with an extensive network of external growth advisers and SME specialists, such as Elephants Child, who have been carefully selected by St. James’s Place. The services provided by these specialists are separate and distinct to the services carried out by St. James’sPlace and include advice on how to grow your business and prepare your business for sale and exit.

*Legal services are also seperate and distinct to the services offered by St. James’s Place.

Trusts are not regulated by the Financial Conduct Authority.

Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’sPlace.

SJP Approved 08/12/2025