Autumn Budget 2025: A deep dive into the EOT changes

What is an Employee Ownership Trust (EOT)?

An EOT is a structure where a company is owned by a trust on behalf of its employees, rather than by individual shareholders or external owners. The trust holds a controlling stake in the company, and employees benefit collectively from the company’s performance.

There are over 1,400 partially or fully employee-owned businesses in the UK and John Lewis is perhaps the best known example.

Key features of an EOT:

1. Collective Ownership: Employees don’t usually get individual shares; the trust owns the company on their behalf.
2. Profit Sharing: Employees often receive bonuses or profit-related payments funded through the company’s success.
3. Long-Term Stability: EOTs encourage long-term thinking since the business isn’t focused on short-term shareholder returns.
4. Tax Advantages: This has become a key driver for EOT popularity since the CGT tax relief is highly advantageous, as shown in the example below.

Autumn Budget 2025 changes to EOT

It was announced in the Budget that Capital Gains Tax (CGT) relief on sales to EOTs has been reduced from 100% relief to 50% for disposals made on or after 26 November 2025.

Under the new rules, when a business owner sells a controlling shareholding to an EOT, 50% of the gain will be treated as a chargeable gain, subject to CGT. The remaining 50% is deferred until the EOT (i.e. the trustees) later dispose of the shares.

This change reflects government concern that the original 100% relief was becoming too costly. The relief reduction is meant to ‘retain a strong incentive for employee ownership while ensuring business owners pay their fair share’.

The implications for EOTs

• For business owners planning to exit via an EOT, the financial benefit is now lower. Instead of zero CGT on sale, there will be a CGT exposure (on half the gain).
• The deferred portion means that tax will only crystallise when the EOT disposes of the shares — which in many cases may happen much later, but there is no guarantee of how long that will take.

What stays the same – and what remains attractive about EOTs

• EOTs remain legally valid and the structure itself hasn’t been abolished.
• You should note, that the income tax free bonus up to £3,600 for employees continues.
• Other non tax benefits of EOTs remain: greater employee engagement/ownership, long-term stability and succession planning without sale to external buyers – may still appeal to many business owners and staff.
• For some owners, the combination of deferred CGT and non-financial benefits (control, legacy, employee welfare) may still make EOT an attractive exit or succession option — even though it’s less “tax free” than before.

Implications & what business owners should do

• If you were considering selling to an EOT: Reassess the financial benefits and tax costs under the new 50% relief rate. The deal isn’t as tax efficient as before — but may still make sense, especially if long-term goals, continuity, and employee welfare matter.
• Timing: Since the change applies to disposals on or after 26 November 2025, if a sale is already planned, seeking advice soon could help — though obviously this depends on business circumstances.
• Re-evaluate exit strategies: With CGT relief reduced, alternatives like third-party sale or other ownership structures may need re assessment (though they come with their own costs/benefits).
• Consider the broader benefits of EOT beyond immediate tax gains: Such as culture, employee loyalty, legacy, continuity. For many owners, these remain compelling even after the change.