For business owners, deciding how and when to exit their company is one of the most significant financial and personal decisions they will ever make, which is why many are turning to Employee Ownership Trusts (EOTs).
EOTs have become an increasingly popular route for business succession in the UK.
They allow owners to sell their business to the employees who helped build it, while maintaining the culture and stability of the organisation.
Although tax changes announced in the Autumn 2025 Budget have altered some of the financial advantages of EOTs, for businesses with the right culture, they remain an attractive and practical option for many shareholders considering their exit strategy.
Our specialist tax advisers work with business owners and our colleagues at Harbourside Corporate Finance to assess whether an Employee Ownership Trust is the right solution as we guide owners through every stage of the transition.
What are Employee Ownership Trusts?
An EOT is a structure that allows a company to become majority owned by a trust on behalf of its employees.
In practice, this means that the existing shareholders sell a controlling stake in the business to the trust, which then holds those shares for the benefit of employees, ensuring that the company continues to operate for their collective benefit.
EOTs can provide a structured succession plan that allows founders to step back while preserving the identity and long-term stability of the business.
Tax changes affecting Employee Ownership Trusts
The tax advantages of EOTs have changed following the Autumn 2025 Budget. Historically, qualifying disposals of shares to an Employee Ownership Trust could benefit from 100 per cent Capital Gains Tax relief.
However, for disposals taking place after 26 November 2025, this relief has been reduced to 50 per cent. This results in an effective CGT rate of 12 per cent.
While this change reduces some of the previous tax incentives, EOTs can still provide a tax efficient route to business succession when compared with other exit options.
What’s more, it can help to improve employee buy in, by making staff feel more invested in the success of the company.
Why consider an Employee Ownership Trust?
Despite the recent tax changes, EOTs continue to offer a number of important advantages for business owners.
Continuity and stability
Selling to an EOT allows the business to continue operating as normal, without the disruption that can occur when an external buyer takes control.
Preserving your company’s culture
Many founders choose EOTs because they want to protect the culture, values and identity of the organisation they have built.
Avoiding the uncertainty of third-party sales
Selling a business externally often involves lengthy negotiations, extensive warranties and complex earn out arrangements. An EOT can provide a more straightforward route to transition.
Supporting employee engagement
Employees may benefit from profit sharing arrangements under an EOT structure, which can improve motivation, retention and long-term engagement.
Protecting local expertise
For many privately owned businesses, EOTs provide reassurance that the company will remain locally rooted and continue to support the community in which it operates.
Valuing a business for an EOT
One of the most important steps in creating an EOT is obtaining a robust and defensible valuation of the company’s shares and preparing financial forecasts to ensure that the business is sustainable over the repayment period.
This valuation is critical when seeking HMRC clearance on the tax treatment of the disposal and ensuring the transaction meets the requirements for EOT relief.
There is now an obligation on trustees to take all reasonable steps to ensure that the consideration paid does not exceed market value.
This was one of the changes introduced in the Autumn 2025 budget, alongside some others.
Through our close working relationship with Harbourside Corporate Finance, we are able to provide specialist expertise in the valuation of shares for Employee Ownership Trust transactions.
This ensures that business owners have a credible and well supported valuation that satisfies HMRC requirements, can stand up to scrutiny and protects all parties involved in the sale.
Practical experience of Employee Ownership Trusts
When advising clients on EOTs, practical experience matters. Mike Lea, Tax Director at Milsted Langdon, has first-hand experience of the Employee Ownership Trust process.
Since 2021, Mike has been a director of a company owned through an EOT structure. This gives him unique insight into both:
- The process of selling a business into an EOT
- The practical realities of operating a company following the transition to employee ownership
This combination of professional tax expertise and real-world experience enables our team to provide pragmatic advice that goes beyond theory.
Speak to our Employee Ownership Trust specialists
Our team supports clients through every stage of the process, including:
- Assessing whether EOTs are suitable for your exit strategy
- Structuring the transaction in a tax efficient way
- Preparing the necessary documentation and liaising with legal advisers
- Obtaining share valuations and HMRC clearance where required
- Supporting the transition to employee ownership
- Advising on governance and ongoing tax considerations
We work closely with business owners to ensure that the transition is structured in a way that protects the value of the business and the long-term interests of its employees.
Our team can help you understand whether Employee Ownership Trusts are suitable for your business and guide you through the process from start to finish.
