Employee Ownership Trusts after the Budget: Are they still a smart exit strategy? 

The recent UK Budget introduced a major shift in how Employee Ownership Trusts (EOTs) are taxed. For years, EOTs have been a popular succession route – offering full Capital Gains Tax (CGT) relief and enabling business owners to reward employees while preserving culture.

But with the relief now cut in half, many owners are asking: does the EOT route still stack up?

What changed in the Budget? 

Until now, qualifying disposals of shares to an EOT were fully exempt from CGT. For disposals on or after 26 November 2025, only 50% of the gain is exempt. Draft legislation details that the remaining 50% is held over and deducted from the trustees’ base cost, coming into charge if the EOT later sells the shares. Importantly, Business Asset Disposal Relief (BADR) cannot be claimed alongside EOT relief. For higher rate taxpayers this typically results in an effective CGT rate of around 12% on the overall gain (because only half of the gain is taxed at the main CGT rate). 

Quick summary:

Opinions differ on the change: some see it as necessary to promote fairness and curb abuse, while others view it as diluting a successful succession route. In practice, the policy still aims to incentivise genuine employee ownership while ensuring some tax is paid on disposals. 

How does this impact business owners? 

For founders planning an EOT exit, the immediate CGT position and cashflow now need closer attention – especially where consideration is paid over time. Structuring instalments and financing to balance “day one” proceeds with sustainability is key. 

Owners should revisit valuations, timelines, and compare EOTs against other exit routes (trade sale, PE, MBO). While the tax advantage is reduced, the government’s intent remains clear: to support genuine employee ownership while improving fairness. 

Are EOTs still worth considering? 

Yes – often. Even with reduced relief, EOTs can still be more tax-efficient than certain alternatives, and they deliver strategic benefits that pure financial exits may not: cultural continuity, employee engagement, and long-term independence.  

Beyond tax: strategic benefits of EOTs 

• Culture & continuity: Preserves the company’s purpose and client relationships. 

• Employee engagement: Employees share in value and have a meaningful stake in success. 

• Succession certainty: Provides a controlled, phased exit aligned to long-term goals.