The Autumn Budget 2025 saw an unexpected announcement of a reduction in the Capital Gains Tax (CGT) relief available on the sale of a company to an Employee Ownership Trust (EOT). With immediate effect (i.e., from 26 November 2025) the existing 0% CGT rate will be replaced with 50% relief, so that now only half of the gain on will be tax-free.
While this is a significant reduction in the available relief, when compared to other exit options an EOT is still a strong option – from both a tax and wider perspective.
Tax aspects…
First, looking at the CGT liabilities arising, even if we assume that the seller’s full £1 million Business Asset Disposal Relief lifetime allowance is available, sale to an EOT continues to provide a lower CGT liability for a seller:
In addition, the ability to pay a bonus of up to £3,600 p/a to employees free of Income Tax continues.
…and beyond
More widely than tax aspects, a move to employee ownership has been shown consistently to provide strong motivation to employees, and employee-owned businesses tend to experience higher productivity, stronger employee engagement and enhanced long-term resilience – while preserving independent ownership in the face of a wider trend towards consolidation and private equity ownership in many sectors.
Overall direction
These CGT changes follow the introduction of several measures in the previous 2024 Budget to make the rules around EOT ownership more robust and less at risk of abuse. While these could be seen as adding ‘red tape’ to the use of an EOT, they also demonstrate the Government’s ongoing commitment to the principle of employee ownership. These earlier measures included:
- Restrictions on the former owners retaining control of the company via the EOT itself
- Trustees being required to be UK resident at the time of the disposal
- Extending the period during which qualifying conditions must be met from one year to four years
- A requirement for trustees to take “reasonable steps” to ensure that the price paid in the EOT sale does not exceed market value
DSG continues to see many clients interested in an EOT structure as an attractive option when considering succession and exit plans, which we are pleased to support – please get in touch if you would like to understand the potential for your business.