EOT tax relief has changed — What business owners need to know
Rahid Rashid, 13 May 2026
Rahid Rashid, 13 May 2026
Employee Ownership Trusts have grown rapidly in popularity as an exit route for business owners in recent years.
The appeal is clear, as it allows seller to transfer their business to an EOT completely free of Capital Gains Tax (CGT), provided certain conditions were met.
For many owners, it combined a meaningful legacy with an exceptional tax outcome, but this has now changed.
With effect from 26 November 2025, the CGT relief available on qualifying disposals to EOTs was cut from 100% to 50% as part of the 2025 Autumn Budget.
Under the new rules, 50% of the gain arising on a sale to an EOT will be treated as a chargeable gain for CGT purposes.
The remaining 50% continues to be held over and will only come into charge on a future disposal of the shares by the EOT trustees themselves.
To put this in perspective: a business owner with a £5 million gain would previously have paid no CGT whatsoever.
Under the revised rules, £2.5 million of that gain is now subject to CGT. At the current CGT rate for higher earners, this represents a very material increase in the tax cost of choosing the EOT route.
It is also important to note that Business Asset Disposal Relief is not available where EOT CGT relief has been claimed, so sellers cannot use BADR to mitigate the chargeable element of the gain.
The Government’s stated rationale is that the relief had grown far beyond its original cost estimates.
The EOT regime was initially expected to cost less than £100 million by 2018-19 and by 2021-22 the cost had reached £600 million. This meant that without intervention was forecast to reach £2 billion by 2028-29.
The Government maintains that it wishes to retain a meaningful incentive for employee ownership while ensuring the relief operates within more sustainable fiscal parameters.
At first glance, the changes to EOT look like a significant material reduction. However, context matters and with current CGT rates for 2025/26, sale proceeds into an EOT are still effectively taxed at a maximum of around 12 per cent overall.
That remains significantly more attractive than many alternative exit routes once commercial reality, fees, earn-outs and deal risk are considered.
The change reflects the growing use of EOTs, which is having a noticeable impact on the public purse.
If you have been considering an EOT sale, the reduction in relief should not necessarily dissuade you, but it does change the calculation behind your decision.
EOTs still offer a significantly more tax-efficient outcome than many alternative exit routes and the non-financial benefits, such as employee continuity, cultural preservation and legacy, remain intact.
The additional complexity around deferred consideration and when CGT falls due also warrants careful advice.
A significant portion of EOT sale proceeds is typically paid over time and navigating the timing of the tax liability requires proper planning.
To understand how the EOT tax changes affect your specific situation and what this means for your exit options, please get in touch with our Partner, Mark Turner (markturner@lubbockfine.co.uk)
Our specialists regularly share insights, guidance and practical updates to help organisations navigate change with confidence.
If you’d like to receive future Corporate finance related updates from our team, you can sign up here.
