Employee Ownership Trust tax changes 2025: Impact on exit planning

The Autumn Budget announced in November 2025 introduced a significant change to the tax treatment of Employee Ownership Trust (EOT) transactions. The previously full Capital Gains Tax (CGT) relief on disposals to EOTs has been halved, materially reducing the tax advantage that made EOTs such a compelling exit route for many business owners.

As a result, exit planning decisions involving EOTs are now more complex and require careful reassessment.

What changed in the Autumn Budget for Employee Ownership Trusts?

Under the new rules, sellers disposing of shares to an Employee Ownership Trust now pay CGT on 50% of the gain, with that charge taxed at 24%. Resulting in an effective CGT rate of 12% for higher-rate taxpayers.

Crucially, Business Asset Disposal Relief (BADR) is not available on the taxable portion of the gain. This represents a sharp contrast to the previous position, where EOT disposals could be completed with no CGT liability at all.

How the EOT tax relief cut affects Capital Gains Tax

The impact of this change is best illustrated by comparing net proceeds under the old and new EOT tax rules.

EOT Sale – old rules vs new rules

While EOTs remain tax efficient, the reduction in proceeds is meaningful, particularly at higher deal values.

EOT vs Trade Sale: net proceeds compared

The narrowing of the tax advantage becomes clearer when comparing an EOT sale under the new rules with a traditional trade sale.

New EOT rules vs trade sale proceeds

*Post April 2026 BADR rates of CGT increase from 14% on the first £1m to 18%

At lower deal values, the difference between an EOT and a trade sale is now marginal. At £1m, the gap is just £20,000. At higher values, EOTs still retain a material advantage, but the margin is no longer overwhelming.

When an Employee Ownership Trust still makes sense

Tax is only one factor in exit planning. Even with reduced relief, EOTs may still be appropriate where other strategic objectives are important.

Key considerations include:

• Deferred consideration: EOT transactions often involve staged payments, introducing risk and time value of money considerations.
• Valuation constraints: EOTs cannot acquire shares above market value, whereas a trade buyer may pay a premium for synergies or strategic fit.
• Cultural alignment: Successful EOTs rely heavily on employee engagement, trust, and long-term commitment.

These factors can outweigh pure tax efficiency in the right circumstances.

Choosing the right exit route after the EOT tax changes

Recent tax and legislative changes have made the choice between an EOT and a trade sale more finely balanced than ever. What was once a clear-cut tax decision now requires a broader assessment of commercial, cultural, and financial priorities.

For many business owners, deciding how to exit remains one of the most significant financial and emotional decisions they will ever make. A trade sale may offer a clean break and certainty, while an EOT can provide continuity, legacy, and employee engagement — but often with greater complexity.

Employee Ownership Trust tax changes – FAQs

Is an Employee Ownership Trust still tax efficient?
Yes, but less so than previously. EOTs still offer a lower effective CGT rate than most trade sales, particularly at higher values.

Is a trade sale now better than an EOT?
Not necessarily. The answer depends on deal size, timing, risk appetite, and non-financial objectives.

Should I delay an EOT transaction?
This depends on your circumstances. Early planning is now more important than ever.

Employee Ownership Trust vs Trade Sale Calculator

To help business owners understand how the new EOT tax rules affect exit outcomes, we’ve created a simple Employee Ownership Trust vs Trade Sale calculator.

This allows you to compare net proceeds under different CGT scenarios before entering detailed discussions.

Check net proceeds with our EOT calculator