December 2025

Employee Ownership Trust (EOT) 2025 Update

When the Chancellor rose to her feet at the despatch box last week, among the dry litany of numbers and projections came a shift that will resonate across the UK business world, especially among business owners’ planning to exit.

For more than a decade, the EOT regime offered a striking carrot to business owners: sell your company to a trust for the benefit of your employees, comply with certain conditions, and benefit from 100% exemption from Capital Gains Tax (CGT). In short: a tax-free exit into employee ownership.

That carrot has now been bluntly whittled down.

What’s changed?

From 26 November 2025, the relief on CGT for qualifying disposals to an EOT is cut from 100% to just 50%.

From today, when a business owner sells their shares to an EOT, half the gain remains tax-free – but the other half becomes a “chargeable gain,” subject to CGT at the prevailing rate (which for many will now be 24%).

Furthermore, the disposal will no longer qualify for other reliefs such as Business Asset Disposal Relief (BADR) or Investors’ Relief where EOT relief is claimed.

The net result: the “0% effective rate” many business-owners counted on is gone; instead, they face a real CGT bill on half the value of the gain.

Why the Government says it acted

The 100% relief once seemed a generous, perhaps overly generous, incentive for sellers to adopt employee ownership. But over time, use of the EOT regime soared, and costs to the Treasury ballooned. The 2025 Budget commentary notes that this growth has pushed the relief to cost “significantly more than anticipated.”

By halving the relief, the Government argues it is striking a balance, retaining some incentive for employee ownership, while ensuring that those disposing of valuable shareholdings pay a “fair share.”

Implications for business owners – and why this matters

This is a major recalibration. For a long-standing entrepreneur eyeing a sale to employees, the EOT had become a kind of holy grail of exit planning – good for employees, good for corporate culture, and good for tax. That calculus now needs to change.

• Reduced tax saving: the effective tax benefit is sharply reduced. What once might have been a clean, tax-free exit now comes with a meaningful CGT bill.
• Impact on deal structure: Many EOT’s have been founded largely on vendor loan notes or debt financing. Now that CGT will be a significant payable event, this places pressure on available deal structures that may be attractive to the seller.
• EOT less compelling vs other exit routes: with half the gain taxable, the relative appeal of EOT disposal compared with traditional trade-sale or other exit strategies may be diminished.
• Exit timing matters: for any owner already engaged in due diligence or negotiations, the date of disposal now carries more weight. Sales completed before 26 Nov benefit from the old regime; after that date, the new rules apply.
• Planning and realism: EOTs remain attractive, particularly for owners driven by values (employee ownership, legacy, staff engagement) rather than purely financial gain. But the financial prize is smaller and the initial “cash off the table” may be less attractive.

What this tells us about government thinking, and what to watch

This change signals a subtle but clear shift in the Government’s attitude. When the EOT regime began, the goal was to promote a more equitable, employee-centred model of ownership. But with rising costs to the Exchequer and signs of exploitation of the tax benefit, the state has recalibrated the balance.

The era of golden ticket exits may be drawing to a close.

Contact us now to confidentially discuss options for your business sale.

Tags: 2025, budget, Employee Ownership Trust, EOT, exit, planning, UK November