Over the past decade, employee ownership trusts (EOTs) became a popular route for business ownership succession. However, the Autumn Budget 2025 heralded a significant shift: from 26 November 2025, the capital gains tax (CGT) relief on qualifying disposals to EOTs was reduced from 100% to 50%. This means that half the gain on a sale to an EOT will now be subject to CGT, typically at 24% for most taxpayers - effectively introducing a 12% CGT charge.
What's changing?
Where EOT conditions are met and a claim is made, only 50% of the gain will be exempt; the other 50% will be taxed. Business asset disposal relief (BADR) and investors' relief (IR) will not be available where EOT relief is claimed. The untaxed 50% of the gain is effectively "held over" and deducted from the trustees' acquisition cost, meaning that portion will only come into charge, in the hands of the trustees, if the trustees later dispose of the shares (or there is a deemed disposal on a disqualifying event).
What this means for sellers
| Date of sale |
3rd -party sale (BADR / standard)
|
EOT sale |
| Pre-Nov 2024 |
10% / 20% |
0% |
| Nov 2024 to April 2025 |
10% / 24% |
0% |
|
From April 2025
|
14% / 24% |
0% |
|
From 26 Nov 2025
|
14% / 24% |
12% |
| April 2026 onwards |
18% / 24% |
12% |
While the reduction in relief is disappointing, especially given the role EOTs have played in promoting employee engagement and business succession, the EOT route remains attractive for some. The CGT rate is still lower than a typical third-party sale, and the non-tax benefits of employee ownership (such as improved performance, sustained independence and legacy creation) remain compelling.
Practical points and HMRC clarifications
- Sellers can apply to pay CGT in instalments over up to eight years.
- If any deferred consideration becomes irrecoverable, a recalculation of CGT can be requested.
- It is not yet clear whether HMRC will allow CGT deferral via non-qualifying corporate bonds under the new regime.
Looking ahead
Those considering an EOT sale should review cash flow, consider debt financing to boost the day one payment, and carefully plan transaction timing. Post-deal incentives for key management, linked to post-tax profit and free cash flow, may be more important than ever to secure timely funding of the buy-out.
If you'd like to discuss how these changes might affect your plans, please get in touch.