The employee ownership trust we looked at instead of selling

The conversation usually starts the same way. An owner in their late fifties, a business of fifteen or twenty people, a trade buyer sniffing around, and a private worry that selling to that buyer means half the staff will be gone within eighteen months and the name over the door will be someone else's within three years.

Employee ownership is the answer that feels right in that moment. The team gets the business, the culture survives, the owner gets paid. For a decade the tax system made it feel almost too good: a qualifying sale to an employee ownership trust was free of capital gains tax entirely.

That changed on 26 November 2025, and the arithmetic that follows is what anyone weighing it up now actually has to run.

What an EOT is, in one paragraph

An employee ownership trust is a trust that buys a controlling interest — more than half the shares, votes, profits and assets on a winding up — and holds it for the benefit of all the company's employees. The employees do not personally own shares. The trust owns the company on their behalf, a trustee board runs the trust, and the business carries on as a business rather than becoming a cooperative.

The seller is paid by the trust, and the trust is almost always paid out of the company's future profits. That last sentence is the whole risk, and we will come back to it.

The tax position, before and after

Until the Autumn Budget on 26 November 2025, a qualifying disposal to an EOT carried full relief from capital gains tax. From that date only half the gain is relieved: 50% is treated as a chargeable gain, which for a higher-rate taxpayer facing the 24% main rate produces an effective rate of up to 12%.

Put an illustrative valuation of £2.4m against it, with negligible base cost, and the comparison looks like this.

Sale to an EOT after the change: half the £2.4m gain is chargeable, so £1.2m at 24% is £288,000 of tax.

Trade sale with business asset disposal relief, which runs at 18% on the first £1m of lifetime gains from 6 April 2026: £180,000 on the first million, plus £1.4m at 24% giving £336,000, is £516,000 in total.

So the EOT route still saves something in the region of £228,000 on this illustration. It is no longer the free pass it was, but it has not stopped being tax-efficient. What has changed is that the tax saving is no longer large enough to carry a decision that does not otherwise make sense.

The old question was whether you wanted to sell to your staff. The new one is whether you can afford to wait to be paid by them.

Where the money actually comes from

This is the part owners consistently underestimate. The trust has no money. Occasionally there is third-party debt at the front end, but most of the price is deferred consideration paid out of profits the company earns after you have handed over control.

Take the same £2.4m business. Say £400,000 is paid on completion out of surplus cash, and the remaining £2m is deferred over eight years — £250,000 a year. If the company's post-tax profits run at around £320,000, that is nearly 80% of profit committed to paying the former owner before anything is reinvested, distributed as employee bonuses, or held back for a bad year.

It works when the business is stable, cash-generative and not about to need a new roof, a new system or a new lease. It goes wrong quietly when trading dips and the payment schedule has to be renegotiated with a trustee board that now has a legal duty to the employees rather than to you. Anyone who has funded a departure out of the business will recognise the shape of it from the co-founder buyout we funded out of the business.

The conditions that have tightened

The qualifying rules were already detailed. Two changes from 30 October 2024 matter most to owner-managers.

**You can no longer control the trustee board.** Former owners and people connected with them must not make up half or more of the trustees. The point of the change was to stop sellers retaining effective control of a company they had been paid a relieved price to give up. Trustees must also be UK resident.

**The clawback window is four years.** If the qualifying conditions are breached, relief can be withdrawn up to four years after the end of the tax year of disposal, and in that window the charge falls on the former owner rather than the trustees. You are exposed to how the business is run for years after you stop running it.

Alongside those, the standing conditions still apply: the company must be trading, the trust must hold and keep a controlling interest, benefits must be provided to all eligible employees on the same terms — amounts can vary by salary, hours or length of service, but the basis has to be common — and continuing shareholders who are directors or employees, with their connected persons, must not exceed 40% of the workforce. The trustees must also take reasonable steps to ensure they do not pay more than market value, which in practice means an independent valuation, not a number you and your accountant agreed over lunch. What a valuer will actually do is set out in how much is your business actually worth.

What the employees get

Not shares, which surprises people. They get a stake held on their behalf, a say through the trustee structure, and the ability to receive income tax free bonuses of up to £3,600 each per year, provided the bonuses go to all qualifying employees on the same terms. National Insurance is still due on those bonuses.

The cultural effect is real but not automatic. Employee ownership changes who benefits from profit; it does not by itself change how anyone behaves on a Tuesday. Businesses that make it work spend as much effort on the governance and the communication as they do on the transaction.

The honest test

Four questions decide it, and none of them are about tax.

Can the business generate enough surplus cash to pay you over eight to ten years while still investing in itself? Is there a management team capable of running it without you, tested rather than assumed? Are you genuinely willing to relinquish control on completion, including a trustee board you do not dominate? And can you personally afford to be paid slowly, in instalments, that depend on trading performance you no longer influence?

Answer yes to all four and an EOT remains one of the better endings available to a UK owner-manager, tax change or not. Answer no to any of them and a trade sale, for all its bluntness, pays you on day one and transfers the risk to somebody else. The emotional side of either version does not get much airtime, which is why what actually happens in the first 90 days after you sell your business is worth reading before you commit to anything.

Common questions

Is an employee ownership trust still worth doing after the 2025 change?

Often yes, but it no longer decides the question on its own. From 26 November 2025 only 50% of the gain on a qualifying EOT disposal is relieved, so half is chargeable — an effective rate of up to 12% for a higher-rate taxpayer against the 24% main rate. On an illustrative £2.4m gain that is £288,000, compared with roughly £516,000 on a trade sale using business asset disposal relief at 18% on the first £1m from 6 April 2026. The saving is real and substantial, but it is now a supporting argument rather than the whole case, and it cannot rescue a deal the business cannot fund.

How does the seller actually get paid in an EOT sale?

Mostly out of the company's future profits. The trust starts with no money, so a typical structure pays a portion on completion from surplus cash, sometimes topped up with third-party debt, and defers the balance over a period commonly running to eight or ten years. On a £2.4m valuation, £400,000 at completion and £2m deferred means £250,000 a year — which against post-tax profits of around £320,000 commits most of the company's earnings before anything is reinvested. That is why cash generation and management strength matter more to the decision than the tax rate does.

Do employees receive shares in an employee ownership trust?

No. The trust holds a controlling interest on their behalf, and individual employees do not personally own shares or receive them on joining. What they gain is a beneficial interest, representation through the trustee board, and eligibility for income tax free bonuses of up to £3,600 a year each, provided those bonuses are paid to all qualifying employees on the same terms — National Insurance is still payable on them. Benefits must be offered on a common basis, though amounts may vary by factors such as salary, hours worked or length of service, applied consistently across the workforce.

What happens if the qualifying conditions are broken after the sale?

Relief can be clawed back, and the window is now four years from the end of the tax year of disposal following the changes that took effect on 30 October 2024. In that period the charge falls on the former owner rather than on the trustees, which means you remain exposed to decisions made in a business you no longer control. The same reforms require that former owners and connected persons do not make up half or more of the trustee board, and that trustees are UK resident. Both make the composition of that board a matter worth negotiating properly before completion.