For just over a decade, the UK had a genuinely good offer for an owner who wanted out.
Sell a controlling stake to a trust set up for your employees, meet the conditions, and pay no capital gains tax at all.
Not a reduced rate. Zero. Nil.
The Employee Ownership Trust was the cleanest exit in the country, and the number of owners using it climbed every year.
But that offer ended in November 2025.
In the 2025 Autumn Budget, the government cut the capital gains tax relief on a qualifying sale to an EOT from 100 percent to 50 percent, effective from 26 November 2025.
An owner selling to an EOT now pays tax on half the gain.
For a higher-rate seller that is an effective rate of around 12 percent.
Still lower than a trade sale, but a long way away from free.
But the change does not only affect the rate. You can also no longer combine EOT relief with Business Asset Disposal Relief.
The two are now a choice, not a stack.
And the untaxed half of the gain is held over against the trust’s base cost, which means it can come back into charge if the company is sold on later.
The headline is simple. The tax-free employee buyout, as a tax structure, is over.
It is worth understanding why the government did this, because the reasoning tells you how to read it.
When the relief arrived in 2014, the Treasury expected it to cost under a hundred million pounds a year.
By 2021-22, the CGT relief alone had reached around six hundred million, with projections running toward two billion.
Roughly half of it was going to the largest 10 percent of disposals.
A scheme designed to spread employee ownership had become, for a slice of its users, a way for large shareholders to exit entirely tax-free.
The government’s stated aim was to filter out the deals driven mainly by the tax break rather than by genuine employee ownership.
We don’t know exactly how many EOTs were simply tax-driven rather than genuinely motivated, but it can be assumed that a fair share were “motivated” by the tax breaks.
But this change affects owners in a very different way depending on what camp they land in.
If you were looking at an EOT mainly for the tax outcome, the case has weakened sharply.
At an effective 12 percent you are now comparing it against a trade sale or a private equity deal on a much more level field, and those routes often deliver more cash up front, a cleaner break, and a buyer who actually wants to run the thing.
An EOT also typically pays you out of future company profits over several years rather than in a single cheque.
That deferral was tolerable when it bought a zero tax bill. It is a harder trade now that the advantage has halved.
But if you genuinely want the business to continue under employee ownership, the rationale survives intact.
The point of an EOT was never only the tax. It keeps the company independent, rewards the people who built it alongside you, and avoids the culture loss that often follows a trade sale or a roll-up.
A 12 percent effective rate does not undo any of that. It just means the decision now has to stand on the merits of the structure rather than on a zero-tax headline.
The choice of an EOT comes down to your personal preference and legacy goals. Where do you see your company in 10, 20, 30 years, and do you want a private equity firm running the show, or the business to stay independent? There is no right or wrong answer here. You just need to decide early and plan accordingly.
But the EOT cut did not happen on its own.
In the same window, Business Asset Disposal Relief rose from 10 percent to 18 percent, and Investors’ Relief had its lifetime limit cut from ten million pounds to one million.
Every tax-efficient way for a UK owner to exit was narrowed at once. The EOT was, for many, the last clean route, and it has now been brought into line with the rest.
None of this is a reason to walk away from employee ownership.
It is a reason to stop treating an EOT as a tax decision and start treating it as a business one, which is arguably what it always should have been.
The full detail on the EOT changes, the BADR increases and the wider UK exit-tax picture, with sources, is set out in CT Acquisitions’ UK SME succession and exit-tax research.
