Employee Ownership Trusts: 2026 CGT Relief Rules

Employee Ownership Trusts After the Autumn 2025 Budget: What the 50% Rule Actually Changes

An Employee Ownership Trust (EOT) lets a controlling shareholder sell their company to a trust for the benefit of all employees. If they meet the conditions, they receive Capital Gains Tax relief on the disposal. That relief is exactly what made EOT sales grow so sharply after the model arrived in 2014. The Autumn 2025 Budget changed the maths, though it did not remove the relief.

What Changed to EOT Tax Relief on 26 November 2025

From 26 November 2025, sellers into a qualifying EOT no longer receive a full exemption on the whole gain. Instead, 50% of the gain is now chargeable to CGT at the seller’s normal rate, with relief applying only to the remaining half. For a seller who would otherwise pay CGT at 24% (or, on qualifying business assets, the current BADR rate), this converts what was a 100% relief into a partial one. It’s a real reduction in after-tax proceeds for anyone contemplating an EOT sale from that date onward — though still a substantial saving compared with a fully taxed disposal.

The qualifying conditions haven’t moved

The core qualifying conditions haven’t moved. The trust must still acquire and retain a controlling interest (more than 50%) in the company, and must benefit all employees on broadly similar terms. Former owner-shareholders can make up no more than 40% of the employee body by number in the two years following the sale. Trading company status and the usual anti-avoidance provisions around pre-arranged exits also remain in place. What’s changed is purely the tax outcome, not the structure or the commercial case for employee ownership — succession certainty, cultural continuity, and the ability to sell without an external buyer all still apply exactly as before.

EOT versus a trade sale: a closer call than it used to be

The practical effect is that an EOT sale now sits closer, in pure tax terms, to a well-structured trade sale using BADR than it did a year ago. That means the decision between the two routes increasingly turns on commercial fit — is there a genuine buyer at a genuine price, and does the owner want one — rather than on tax alone. Funding the trust’s purchase price, typically from the company’s future profits, also still needs careful modelling against the halved relief. Deferred consideration paid over several years now sits on a smaller exempt base.

Frequently Asked Questions

Do Employee Ownership Trusts still get a full CGT exemption? No. Since 26 November 2025, only 50% of the gain qualifies for relief; sellers pay their normal CGT rate on the other 50%.

Is an EOT sale still worth considering after the 2025 Budget changes? Often yes — the relief, while halved, is still substantial, and an EOT remains one of the few routes to sell a business without finding an external buyer, while preserving jobs and culture.

How is an EOT purchase usually funded? Typically from the company’s own future post-tax profits. The former owner receives this over time as deferred consideration, rather than as a single lump sum at completion.

How H&Hendricks Can Help

H&Hendricks models both routes side by side — EOT and trade sale — under the post-Budget rules, so the comparison reflects the tax position as it actually stands today, not the year-old assumptions many owners are still working from.