Employee Ownership Trusts (EOTs) have rapidly grown in popularity as a succession route for UK companies.
Since their introduction in 2014, the model has expanded dramatically, with industry bodies reporting a 1,640 per cent rise in the number of EOT-owned firms and more than 560 transitions recorded in 2024 alone.
However, the Autumn Budget has changed the tax landscape for EOTs, prompting many owners to reassess whether this structure remains the right move.
What exactly is an Employee Ownership Trust?
An EOT is a structure in which a trust acquires a controlling stake, more than 50 per cent, in a trading company on behalf of its workforce.
The trust holds and manages this ownership for the benefit of employees. Business owners can gradually step back while maintaining a minority shareholding or staying on as directors, provided they do not control the trust itself.
To qualify for relevant tax reliefs, the company must be a trading business or the holding entity of a trading group.
How have the Autumn Budget changes affected EOTs?
Until now, one of the most attractive features of transferring a business to an EOT was the full exemption from Capital Gains Tax (CGT).
The latest Autumn Budget has altered this significantly and disposals to an EOT will now qualify for only 50 per cent CGT relief – half the previous 100 per cent relief
HMRC data showed that the cost of the relief had expanded sharply, rising to £600 million in 2021/22.
Projections indicated that this figure could escalate to around £2 billion by 2028/29, prompting the Chancellor to intervene.
While this reduces one of the major tax incentives, EOTs still retain several appealing benefits:
For many founders, the ability to preserve the company’s identity and pass ownership to employees remains a compelling factor.
Understanding today’s EOT rules
Recent Budgets have introduced additional compliance conditions to ensure EOTs operate as intended.
These include residency requirements for trustees, the extension of qualifying conditions for CGT relief from one year to four and ongoing obligations to ensure the company continues to meet employee-ownership criteria
As with any succession strategy, the suitability of an EOT depends on the business, its shareholders and its long-term goals.
Is an EOT still the right path?
Despite tighter reliefs, EOTs continue to offer meaningful tax and cultural advantages, but owners should review the numbers carefully.
For those planning an exit in the coming years, early advice will help determine whether an EOT remains the most beneficial option or whether an alternative route may be more aligned with their objectives.
