CGT Relief on the EOT One Week On – Your Questions Answered

In only seven days, we’ve moved from being blindsided by a 50% cut to Capital Gains Tax (CGT) relief on sales to Employee Ownership Trusts (EOTs) to working with members, advisers, and government on a strategy to keep viable EOT deals moving. Here, we answer your most pressing questions. 

When tax changes land without warning or consultation, the race is on to understand the full implications, triage the most urgent issues, and focus effort where we can have the greatest impact.

With our adviser community and the support of members, we’ve already made meaningful progress. 

We have an active dialogue with HMRC and are preparing for our meeting with DBT Minister for Mutuals, Blair McDougall, on 16 December. Two days later, we have a meeting with HMT Director for Personal Tax, Pensions, Tax Administration & HMRC Spending.

The most immediate challenge facing EO advisers and businesses is no longer just what’s changed, but how the new relief will work in practice – and whether deals can proceed with confidence.

So, here’s an update on what we know, what we’re seeking to clarify, and how this affects both current transitions and our wider Growth Strategy.

Can the CGT be Paid in Instalments?

HMRC has responded to the eoa's CGT query and confirmed four fundamental points about the impact of the 2025 Budget reduction of EOT CGT relief to 50%:

1. The effective rate of tax on the overall disposal to the EOT will be no more than 12% of the overall gain (for individuals who pay tax at 24% on their gains)
2. A claim for EOT relief - and the reporting of any chargeable gains - must be made on the taxpayer's self-assessment tax return for the tax year of disposal
3. There’s no change to the normal CGT payment date of 31 January following the end of the tax year of disposal
4. Where consideration for a disposal is received in instalments over a period exceeding eighteen months, it "may" be possible to apply to HMRC to pay the tax due on the disposal in instalments.

We’re working with HMRC to seek further clarification and a conversation on:

• The precise conditions for instalment relief and how HMRC will interpret these in EOT transactions
• Whether the 50% chargeable gain could be reduced further in cases of extended deferred consideration periods (e.g., 8+ years)
• How HMRC will approach scenarios where payment schedules change post-sale

To support this, we’re working with Graeme Nuttall and others on draft contractual clauses that are likely to be needed to secure CGT instalments. These will inform the detailed questions and recommendations we take back to HMRC.

Our immediate priority is clear: make sure EOT deals that are ready to go don’t get stuck for lack of clarity on how and when tax is paid.

Does that Mean CGT on a Sale to an EOT will be 12%?

In simple terms, a 50% relief on a gain that would otherwise be taxed at 24% gives an effective rate of 12%. For gains that would otherwise be taxed at 18%, the effective rate becomes 9%.

While 100% relief is preferable, a 50% relief still offers a significant tax advantage compared to most other sale routes.

So, the core message for owners is that the EOT remains a comparatively attractive route. But we have to ensure the new regime works in practice, especially for deals structured with long deferred consideration.

Why isn’t the eoa Challenging the Change to the Relief?

Some members have understandably asked why we’re not lobbying for the 50% reduction to be reversed, and 100% CGT relief reinstated.

The short answer is that we don’t believe this is a winnable battle. Even if we were successful, any reversal would likely be short-lived. More importantly, embarking on this kind of campaign could put the long-term stability of the EOT regime itself at risk.

There are a few key points to bear in mind here:

1. The fiscal reality

During difficult economic times, we’re not the only ones being targeted on reliefs, and our success in growing the sector means we’re costing more money in relief than planned for.

The original 2013 costing suggested the entire EOT tax regime would cost under £100m in 2018-19. The cost of the CGT relief alone had reached around £600m by 2021-22 and is forecast to rise to around £2bn by 2028-29 without action.

Against that backdrop, defending 100% relief indefinitely was always going to become harder.

2. The evidence on what drives transitions

The EOT incentive has been a powerful catalyst, helping the sector grow from c.150 EO businesses to more than 2,500.

However, in around half of transitions, the CGT relief is the primary driver but not the only one. Legacy, keeping jobs and investment rooted in their communities, and performance benefits are close secondary motivators

In the other half, the model and its wider benefits are the primary factor, with CGT relief an important, but additional, incentive.

This mixed picture makes the case for restoring 100% relief at all costs much harder to sustain when set against the rapidly escalating fiscal cost.

3. The bigger risk: destabilising the entire regime

While the move to 50% relief is unwelcome, it’s still a material advantage versus most alternatives. Had HMRC removed the relief entirely, the case for a major campaign to defend the EOT regime would have been unavoidable.

Right now, our judgement is that the best way to protect the sector is to:

• Ensure the 50% relief can be used in practice, especially for deals already underway
• Demonstrate EOTs can continue to deliver succession, resilience, and productivity gains even with a reduced tax incentive
• Build the longer-term policy case for EO based on impact not just tax

What are we Asking Ministers and Gov Departments?

We’re in listening mode and currently working closely with our Specialist Advisors, our wider advisor community, and Affiliate members exploring or progressing transitions. 

Our aim is to fully understand, synthesise, and prioritise where clarity and certainty are most needed by our community to make decisions about their EOT deals. 

This intelligence is shaping our engagement with government as outlined at the beginning of this article.  

With our member community we’ve issued a survey to businesses planning EOT deals. We’ve also invited advisers to an online session to identify priority issues and needs.

These insights will inform our request for clarity from HMRC and our engagement with DBT and other departments.

What This Means for our Growth Strategy

The timing of the CGT announcement, immediately after the launch of our Growth Strategy, was interesting to say the least.

However, the fundamentals haven’t changed. Our ambition to grow employee ownership remains unshaken. The impacts we’re seeking on business performance, resilience, and place-based prosperity remains the same. 

The route to get there will look different, but the strategy itself has already helped us build the relationships, insight, and pathways we need.

In many ways, this is the test we always knew was coming. If EO is to grow and have a lasting impact, it can’t rely solely on a 100% CGT relief. The sudden change will have unintended consequences, and we’ll need to navigate them, but our rationale and determination are unchanged.

Getting clarity and confidence that the new relief can work in practice is now essential to delivery of the wider strategy. Once we have this in place, we can move more quickly into the other parts of our plan to grow the sector

How is it Affecting Transitions?

We’re still building the evidence on how deals are being affected. But we’ve not yet heard from any business that has definitively abandoned an EOT route solely because of the change.

Early on, there was a fear that having CGT due upfront could be a deal-breaker for a high number of transitions but as noted, HMRC has confirmed it can be paid in instalments. We’re now seeking clarity on clear guidance and application of this. 

So far, many businesses close to completion remain committed to their deal but lack sufficient clarity on how the new regime will work in practice to be able to sign. Others are reconsidering their options for the same reason.

Our survey (open until next week) will give a clearer picture. Over the coming days and weeks, we’re also seeking case studies – anonymised, if necessary – to illustrate how these changes are affecting EO ambitions and deals.

How you can help now:

• If you’re planning or close to an EOT deal – please complete our survey and share details (in confidence) with the eoa team or your adviser
• If you’re an adviser – join our online session and feed in specific examples, questions and suggested solutions
• If you can share a case study – even anonymised, your experience will directly shape our asks of HMRC and Ministers