eoa Member Statement: Capital Gains Tax Relief Changes for Employee Ownership Trusts (EOTs) 

The UK Government has today confirmed its continued support for employee ownership as a strategic business succession option – while adjusting the fiscal treatment of Employee Ownership Trusts (EOTs) to reflect wider economic pressures.  

The Budget introduces a significant change: Capital Gains Tax (CGT) relief on qualifying disposals to an EOT will reduce from 100% to 50% for transactions completing on or after 26 November 2025. The Government’s stated intent is clear:  

“… halving capital gains tax relief for bosses selling their businesses to Employee Ownership Trusts … to retain a strong incentive for employee ownership while ensuring business owners pay their fair share.”  

This change will be legislated for in the Finance Bill 2025–26. Business Asset Disposal Relief (BADR) will not apply to these disposals.  

What the Change Means 

Under the post-Budget regime:  

• 50% of the CGT on a qualifying sale to an EOT will remain exempt, compared to 100% previously. 
• This leaves an effective CGT rate (total cost of CGT on the sale of business to and EOT) of around 12% at the higher rate, and 9% at basic rate. 
• Crucially, the EOT continues to offer a higher tax saving when compared to a conventional trade sale, even when accounting for BADR available on a trade sale.  

This represents a shift from a “zero-CGT exit” to a “half-taxed exit”. But it still leaves EOT succession materially more tax-advantaged and structurally more attractive than most trade sale, Private Equity or MBO (Management Buyout) alternatives.  

Why the EOT Still Stands Strong 

While the CGT relief has been scaled back, the core purpose of the policy remains intact: removing practical barriers so business owners can choose employee ownership where it is the right strategic fit. Even at 50%, the revised relief continues to support:  

• Awareness: advisers must present the EOT option. 
• Affordability: vendor-financed deals over extended periods remain viable. 
• Value protection: the relief helps close the pricing gap with other exit routes. 
• Stability: the uplifted base cost limits future EOT-level tax drag.  

Given the state of public finances and other CGT reforms, it is understandable that relief has been moderated. However, there remain areas where government can and should rebalance to sustain the strength and attractiveness of the EOT.  

For example, the four-year EOT clawback period introduced last year may compound as a disincentive, especially given the simultaneous introduction of the trustee independence requirement. Former owners shoulder risks outside their control—such as business interruptions or temporary trading disruptions—for a much longer period. We will continue to seek an approach that mitigates these risks as far as reasonably possible.  

Also consider, that the 50% of CGT is paid on disposal mitigates future exposure to the risk of clawback, should the trust later dispose of shares or face a disqualifying event.  

A Mature, Purpose-Driven EOT Market 

The Office for Budget Responsibility notes a likely behavioural shift: fewer business owners using EOTs purely as a tax strategy, and a market increasingly shaped by genuine succession and long-term stewardship. This aligns with recent regulatory tightening on trustee independence, UK residence and ongoing compliance standards. Together, these measures strengthen the integrity of the EOT model.  

This is evolution, not retreat. 

The nature of the relief has changed, but it remains attractive. And the EOT model continues to be the strongest route for founders who prioritise their people, values and legacy.  

Immediate Considerations for Owners and Boards 

1. Live EOT Transactions  

If your EOT deal is well advanced, you should speak to your adviser immediately. Ask them to run an updated budget and timetable based on the new 50% CGT relief.   

Together, you should assess whether the transaction should proceed as planned, be re-priced, or be paused while you review valuation, funding and vendor-finance assumptions. Businesses transitioning should consider whether the existing payment plan for shares remains viable in the context of a potential up-front CGT charge. This ensures you move forward with clarity, confidence and a full understanding of how today’s change affects your specific deal. Members can join the discussions in the eo Hub to ask questions and share insights about this.

2. Early-Stage or Considering an EOT  

Continue to evaluate the EOT on merit. Remodel proceeds using the 50% relief, compare alternative routes, and reassess funding assumptions. So far, the EOT remains tax-advantaged compared to like-for-like trade sales, but vendors should be completely aware of the tax and cashflow implications that all succession options imply.  

3. Existing EOT Businesses  

For existing EOTs, the change does not impact CGT relief on transactions prior to 26 November. However, the direction of policy is clear, and the eoa urges all existing EOT businesses to strengthen their governance foundations. This includes ensuring trustee independence, maintaining disciplined and transparent valuations, and actively overseeing funding and compliance with the 2024 rule changes. We also encourage boards and trustees to consider scheduling a formal governance review, ensuring your EOT remains resilient, compliant and aligned with best practice as the policy landscape evolves. 

The Enduring Power of Employee Ownership 

From the eoa’s perspective, today’s tax announcement does not alter the fundamental strength or purpose of the Employee Ownership Trust model. While the CGT headline has changed, the core value of the EOT lies well beyond tax. Its power is in its ability to transform organisational culture, secure continuity of mission, and embed a company’s values and purpose for the long term.  

Across the employee-owned sector, we consistently see that transitioning to employee ownership cultivates a genuine “owner’s mindset”, strengthens accountability, and builds resilient, values-driven organisations. These are the qualities that set employee ownership apart — and why the EOT remains the strongest succession route for founders who prioritise their people, care deeply about their legacy, and want their business to thrive for decades to come.  

New Opportunity: Government Call for Evidence 

Alongside the Budget, government has launched a Call for Evidence on how to best support co-operatives, mutuals and employee owned businesses to start, grow and thrive. As the Minister for Small Business and Economic Transformation has said:  

"I want to ensure that co-operatives and mutuals are not just supported but championed as a vital part of the UK’s economic future.”  

This is a rare and significant opportunity. The eoa will coordinate a strong, evidence-led sector response ahead of the 18 February 2026 deadline.