Succession planning

Why consider an employee ownership trust?

If you have been exploring succession options with your advisors, you will hopefully have discussed the possibility of selling your company to an Employee Ownership Trust (EOT).

What is an employee ownership trust?

EOTs are not new – they’ve been around since 2014. In essence, an EOT is a special type of trust that holds a controlling interest in a company for the benefit of all employees of the company (and, if relevant, the employees of its subsidiaries) on the same terms.

Before 26 November 2025, if you sold your company to an EOT and met the qualifying conditions, the disposal was treated as a ‘no gain, no loss’ event for capital gains tax (CGT) purposes. This meant that if you sold your business to an EOT no CGT would payable, provided the statutory requirements were satisfied. This full CGT relief had been in place since the EOT regime was introduced in 2014, when the government first created the tax incentives to support employee ownership.

However, during the last Budget, the current Labour government restricted the relief. For disposals on or after 26 November 2025, and assuming all requirements are satisfied, the relief now covers 50% of the gain. With a main rate of CGT currently at 24%, this creates an effective CGT rate of 12% for a seller.

Where are we now?

While the removal of full CGT relief will deter some sellers, EOTs continue to offer compelling advantages. They remain the best fit for many business owners planning their succession.

Below are the key reasons why EOTs should remain firmly on the table.

They protect legacy:

If preserving the ethos, culture and continuity of your business matters to you, an EOT is still one of the strongest succession routes available.

Selling to an EOT keeps ownership in the hands of the people who helped build the business. As a seller, you can usually remain involved in key decisions by acting as a trustee or serving on the board of the corporate trustee.

By comparison, a third‑party buyer may have very different priorities. These could include restructuring, carving up the business or pivoting strategy in ways that could undermine your legacy.

EOTs encourage employee participation:

For businesses built around a strong people‑centred culture, an EOT can feel like a natural continuation of that philosophy.

Under employee ownership, employees often experience higher engagement, greater alignment with the company’s long‑term goals and an increased sense of shared purpose.

In contrast, a trade sale may bring redundancies, cultural disruption, or a shift away from the values you’ve worked hard to establish.

They are still tax efficient for sellers:

Even after the reduction in CGT relief, an EOT sale remains highly tax‑efficient relative to other common succession models. If you make a qualifying sale to an EOT your capital gain will be taxed at an effective rate of 12%.

By contrast, a management buyout (MBO) or trade sale will normally be taxed under the standard capital gains tax regime. This means sellers are typically subject to CGT at 24%, unless business asset disposal relief (BADR) applies. Where BADR is available, the first £1m of qualifying lifetime gains is taxed at 18%. Any excess is taxed at 24%.

While BADR can reduce the tax burden of an MBO or trade sale, the overall effective tax rate is often still higher than a qualifying EOT sale. As a result, even after recent legislative changes, the EOT remains a compelling, tax‑efficient succession strategy for many business owners.

They foster a friendlier sale process:

Compared to third‑party sales, EOT transactions typically involve less aggressive negotiation.

While trustees must ensure the purchase price of the shares does not exceed market value, the process tends to be more collaborative and less adversarial. This can reduce transaction costs, negotiation fatigue and overall deal complexity.

They create a buyer where there may not otherwise be a suitable one:

Succession planning often focuses on two main routes: an MBO or a trade sale. However, neither is guaranteed to produce a viable or willing buyer.

An MBO requires a capable and motivated management team willing (and able) to take on the financial and operational responsibility of ownership – something that many SMEs simply don’t have.

A trade sale depends on finding a buyer whose culture, intentions and strategic goals align with yours. The pool of potential acquirers may be small, and even where buyers exist, may not be the right fit.

The EOT model solves this problem by creating its own buyer – the trust – ensuring continuity where other options fail.

They confer a unique tax relief for employees:

The EOT model also continues to give companies the ability to pay income‑tax‑free bonuses to employees. Provided certain requirements are met, an EOT‑controlled company can pay bonuses of up to £3,600 per employee per tax year free from income tax. However, national insurance contributions still apply to these payments, for both employer and employee.

Key takeaways

The EOT model still has a clear purpose and continues to work exceptionally well for a wide range of businesses. While the change to the relief was disappointing for many proponents of EOTs, it does not diminish the many strategic and cultural advantages that EOTs offer.

For numerous owners, an EOT remains not only viable but the preferred route for succession.

Your EOT experts at PKF Francis Clark

If you would like to explore whether an EOT could be the right option for your business, our specialists would be pleased to help.

Selling your business to an EOT is a specialist area and having advisers with genuine, hands‑on experience is essential. At PKF Francis Clark, EOTs have become a core part of our succession planning work. Our team has a strong track record of advising business owners through every stage of the transition. The firm regularly delivers EOT-focused webinars, publishes technical guidance and supports businesses across the UK exploring employee ownership.