Are Employee Ownership Trusts Still Worth Considering As An Exit Strategy After The Budget?

Among the array of changes introduced in the Autumn Budget was a development in the relief available when selling a business to an Employee Ownership Trust (EOT). Since their introduction in 2014, EOTs have cost public finances significantly more than anticipated – and impliedly saved a significant amount for sellers.

We look at the change, the reliefs that remain available to EOTs, interaction with other advantageous offerings, and why EOTs are still a worthwhile option for business owners to consider.

The changes

From 26 November 2025, when a disposal is made to the trustees of an EOT, 50% of the gain will be treated as the seller's chargeable gain for the purposes of Capital Gains Tax (CGT). Furthermore, Business Asset Disposal Relief (BADR) or Investors' Relief will not be available where relief has been claimed under this section.

Previously relief had been set at 100%, making EOTs a very attractive exit method for business owners.

Reliefs available to Employee Ownership Trusts

There are three reliefs available to qualifying EOTs, benefitting sellers, employees, and beneficiaries.

The first of these is the subject of the change brought in by the budget. Despite CGT now being applicable to 50% of the gain, this still means that 50% of any gain made on the disposal of shares to an EOT will benefit from a CGT relief. There are seven main requirements for a transfer to qualify for this relief.

The second relief available when an EOT is set up will benefit employees directly. Each employee can receive qualifying bonus payments of up to £3,600, exempt from income tax in each tax year that they're paid by a company owned by an EOT. It is important to note that class 1 National Insurance contributions are still payable and there are requirements for a bonus to qualify, but the income tax relief is still welcome.

The third form of relief available is an exclusion, for inheritance tax purposes, of the disposition of property by a close company to an EOT, subject to statutory conditions.

Other advantages

As well as the benefits available as a direct consequence of a company being owned by an EOT, such a company would still be considered independent for the purposes of tax-advantaged share schemes, including Share Incentives Plans (SIP), SAYE option plans, Company Share Option Plans (CSOP), and Enterprise Management Incentives (EMI).

These in turn can bring tax benefits to the employees but also to the company. For example, there are EMI option plans that allow the company to take advantage of a corporation tax deduction where qualifying shares are acquired by an employee exercising an EMI option.

Are Employee Ownership Trusts still beneficial?

Although the extent of relief has decreased, there is a still a significant CGT reduction available to business owners when transferring their shares to an EOT. Employees can also benefit from income tax free bonuses (subject to statutory requirements), while inheritance tax exemptions ensure EOTs are a well-placed succession tool.

Combining these benefits with the continuing ability to implement tax-advantaged share schemes, EOTs continue to provide a means for the tax-efficient disposal of shares in a way that benefits sellers, businesses, and employees alike. While a sale to an EOT is only one exit route for a business owner, it is still worth considering.

This article was co-authored by Trainee Erin Casey. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.