Guide to Employee Ownership Trusts

Succession planning remains one of the biggest challenges facing owner-managed businesses. For many business owners, an Employee Ownership Trust (EOT) offers a way to realise value, preserve their legacy, and reward the employees who helped build the business.

Introduced in 2014, EOTs have become an increasingly popular succession solution for companies looking to maintain independence and protect their culture. While changes to the EOT tax regime have altered some of the headline tax advantages, EOTs continue to offer an attractive alternative to a traditional third-party sale.

In this guide, we explain how EOTs work, what has changed and the key considerations for business owners considering employee ownership.

Why choose an EOT?

An EOT is a trust that acquires a controlling interest in a company and holds those shares for the benefit of the employees.

In practice, an EOT can enable business owners to transition ownership while allowing the business to continue operating with minimal disruption. It can also help to maintain the company's values, reward employees and support long-term growth.

Some of the key benefits include:

• Preserving the independence and legacy of the business;
• Providing a succession solution where there may be no obvious external buyer;
• Encouraging greater employee engagement and long-term commitment; and

Although tax reliefs have historically been a significant attraction, many business owners now view EOTs primarily as a means of securing the future of their business and recognising the contribution made by their employees.

Recent tax reforms affecting EOTs

There have been a number of important changes to the EOT regime in recent years:

Capital Gains Tax (CGT) relief

Historically, qualifying disposals to an EOT benefited from 100% relief from Capital Gains Tax (CGT). For disposals made on or after 26 November 2025, that relief has been reduced. Broadly, 50% of the gain is now subject to CGT, with relief available in respect of the remaining 50%. While this reduces the overall tax advantage, EOTs can still offer a more favourable tax outcome than many alternative exit routes.

Longer clawback period

For transactions completed on or after 30 October 2024, HMRC may withdraw the available tax relief if the qualifying conditions cease to be satisfied within the four tax years following the disposal.

This places greater emphasis on ensuring that the EOT structure remains compliant after completion, rather than focusing solely on the sale process itself.

Governance and structural requirements

Alongside the tax reforms, additional measures have been introduced to reinforce genuine employee ownership:

Trustee independence

Former owners and their connected persons may make up no more than 50% of the trustees.

In addition, former owners must not retain control of the trust. These rules are intended to ensure that meaningful control passes to the EOT following the transaction. Failure to comply with these requirements could place the tax reliefs at risk.

UK resident trustees

The trustees must be UK resident in the year of the disposal and during the relevant post-sale compliance period.

The rules significantly restrict the use of offshore trustee arrangements and reinforce the UK's oversight of EOT structures.

Fair market valuation

Trustees are required to ensure that the company is acquired at a fair market value and that any deferred consideration arrangements are commercially justifiable.

Obtaining appropriate valuation, legal and tax advice is therefore an important part of any EOT transaction.

Ongoing compliance

HMRC has issued further guidance on various aspects of the EOT regime, including the operation of the trustee independence requirements.

However, a number of practical issues continue to evolve. As a result, legal, tax and governance advice should be considered not only during the initial transaction but throughout the life of the EOT to ensure ongoing compliance with the qualifying conditions.

Is an EOT right for your business?

While the tax advantages of EOTs are no longer as extensive as they once were, they remain an attractive succession solution for many owner-managed businesses.

For owners focused on protecting their legacy, maintaining the independence of their business and rewarding employees, an EOT can provide a compelling alternative to a traditional trade sale.

Every business is different, and careful planning is essential to determine whether employee ownership is the right fit. The suitability of an EOT will depend on a range of factors, including the company's financial performance, governance arrangements, succession objectives and long-term strategy.

At Aberdein Considine LLP, our Corporate and Business Advisory team can advise on every stage of the EOT journey, from assessing suitability and structuring the transaction through to implementation and ongoing compliance.

For more information, or to discuss whether an EOT may be suitable for your business, please get in touch with the Corporate and Business Advisory team.