An Employee Ownership Trust (EOT) is a structure in which you sell a controlling stake (more than 50%) in your business to a trust held on behalf of all employees. The October 2024 Budget changed the tax treatment significantly, but EOTs remain a viable and values-driven exit route for owners who want their business to remain independent and employee-owned.
How does an EOT work?
The owner sells shares to a newly created trust at market value. The trust is funded partly by the company's own cash and partly by deferred consideration: the business pays the owner out of future profits over a period of typically three to seven years. Employees do not put in any capital themselves; they become beneficiaries of the trust.
Following the 2024 Budget, the sale to an EOT no longer qualifies for a full CGT exemption. Instead, BADR applies in the normal way: 18% on gains up to the £1m lifetime limit, 24% above it. The tax treatment is the same as any other qualifying business disposal. The previous 0% CGT rate for EOT sales was removed for transactions completing after 30 October 2024.
Who does an EOT suit?
An EOT works best for owners who are motivated by legacy and culture alongside financial return. It suits businesses with a stable, profitable track record: the company needs to generate enough cash to fund the deferred consideration payments to the seller over the agreed period. It is particularly well-suited to professional services firms, engineering businesses, and specialist consultancies where employee retention and culture are core to performance.
It is less appropriate for businesses with high capital requirements, irregular cash flows, or where the owner needs to receive the full sale price upfront rather than over several years.
Financial and tax considerations after the 2024 Budget
The key change is the removal of the CGT exemption. Sellers now pay CGT on the same basis as any other exit route. What remains is the corporation tax exemption: employees can still receive up to £3,600 per year in tax-free bonuses under an EOT structure, which is a meaningful retention and engagement benefit.
The valuation of shares sold to the EOT must be agreed with HMRC at arm's length. Overpayment by the trust is not permitted and carries tax risk. The process requires specialist legal and tax advice.
| Factor | Position (April 2026) |
|---|---|
| CGT on sale to EOT | BADR rate (18%) to £1m; 24% above (same as trade sale) |
| Employee bonus exemption | Up to £3,600/year per employee, income tax-free |
| Minimum stake to be sold | More than 50% (controlling stake) |
| Typical deferred consideration period | 3 to 7 years |
Pros and cons of an EOT
Advantages: Business remains independent and employee-controlled; strong legacy outcome; tax-free employee bonuses improve retention; no third-party buyer negotiation required; goodwill preserved.
Disadvantages: Full consideration paid over several years, not upfront; business must generate sufficient cash to fund payments; CGT exemption removed post-2024 Budget; more complex legal structure than a direct sale; not appropriate for capital-intensive businesses.
This page contains general information only. Speak to a qualified corporate finance adviser or tax adviser before making any decisions regarding the sale or transfer of your business.