Employee ownership trusts, after the relief was halved

By Mo Romanowicz, founder of The Harvest Club. Published 10 October 2026. 3 minute read.

For a few years, the employee ownership trust was the most talked-about exit in UK small business. Owners could sell a controlling stake to a trust for their employees and pay no Capital Gains Tax at all. That changed in the November 2025 Budget. Employee ownership can still be a good exit, but it now has to stand on its merits rather than its tax break. This guide is general information, not tax or legal advice.

What an employee ownership trust is

An employee ownership trust, or EOT, is a trust that holds a controlling stake in a company for the benefit of all its employees. The owner sells their shares to the trust, the employees become the indirect owners, and the company carries on trading.

What changed in November 2025

According to the government's policy paper, the Capital Gains Tax relief on disposals to an EOT was reduced from 100% to 50% for all disposals made on or after 26 November 2025. Half of the gain is not taxed on you: it is held over, which reduces the trust's base cost instead. The other half is taxable at normal Capital Gains Tax rates, currently 24% for a higher-rate taxpayer, which works out at an effective 12% on the whole gain.

Anyone reading older articles should check their date: much of what is online still describes a tax-free sale.

The main conditions

Summarising the rules as advisers set them out:

• The trust must acquire a controlling interest, more than half of the shares, votes and profits, in the tax year of the sale.
• All employees must be able to benefit, on the same terms, with differences allowed only for objective factors such as pay, length of service or hours worked.
• The former owners must not control the company through control of the trust, and the trustees must be UK tax resident.
• The trustees must take reasonable steps to make sure they do not pay more than market value, which usually means an independent valuation.
• If the conditions are broken within four years of the end of the tax year of the sale, the relief can be withdrawn.

Employees of an employee-owned company can also receive tax-free bonuses of up to £3,600 a year each, paid on the same terms to all of them. National Insurance still applies.

How the price is paid

An EOT has no money of its own. In most deals, the trust owes much of the price to the sellers, and the company makes contributions to the trust out of its future profits so the trust can pay them. Some deals add bank debt for an initial payment. Either way, the seller is usually paid over years, from the profits of a business they no longer control. Everything said in the management buyout guide about deferred consideration applies here, and more so.

When it still makes sense

• You care about independence, culture and your people more than the highest possible price.
• The business is consistently profitable and can fund the payments without starving itself of investment.
• There is a management team able to run it without you.
• You are comfortable being paid over several years.

It makes less sense if you need most of your money at completion, if profits are volatile, or if a trade buyer would pay meaningfully more. The halving of the relief has narrowed the gap between an EOT and a trade sale, so compare them on what you actually receive, after tax and in today's money.

Where to start

An EOT, a management buyout and a trade sale all reward the same thing: a business that runs and grows without its owner. Find your gaps with the Harvest Score, then put a number on the business with the valuation calculator.

General information to help you prepare, not tax, legal or financial advice. Rates and rules change; check the current position and take advice on your own circumstances.