EOT Pros and Cons: A Balanced Look After the 2025 CGT Cut

Employee ownership trusts (EOTs) have been one of the most talked-about exit routes for UK owner-directors over the last decade. The pitch was simple and powerful: sell a controlling stake to a trust that holds the company for your staff, keep the culture you built, and pay no Capital Gains Tax on the sale. That last point drove a lot of the enthusiasm.

The tax half of that pitch changed on 26 November 2025. This page is an honest, up-to-date weigh-up of what an EOT genuinely offers and what it costs you, priced at 2026/27 rates. It is written for the owner deciding how to leave, not for a textbook. If you want the deep tax mechanics, we link out to them rather than repeating them here.

This is general guidance, not advice on your specific position. The numbers below are illustrative and your situation will differ, so have your figures modelled before you commit to a route.

The advantages of an EOT

Set the tax question aside for a moment, because several of an EOT's strengths have nothing to do with Capital Gains Tax and did not change in the Budget.

• A phased, controllable exit. You are not handing the keys to a stranger on completion day. Ownership transfers to the trust, but you can stay involved on your own terms, step back gradually, and hand over management at a pace that suits the business.
• You keep the culture. There is no external buyer stripping costs, merging teams or moving the business. For owners who care what happens to long-serving staff and to the name over the door, this is often the single biggest draw.
• Staff retention and engagement. Employees become beneficiaries of the trust and can receive an income-tax-free bonus of up to £3,600 a year (National Insurance still applies). Employee-owned firms often report stronger retention, which protects the value you are being paid for.
• No sale process circus. You avoid marketing the business, fielding tyre-kickers, and opening your books to a competitor who may walk away. The buyer already exists: it is your own workforce, via the trust.
• A ready answer when there is no obvious buyer. Plenty of good, profitable businesses are hard to sell externally because they depend on the owner or sit in a niche. An EOT gives them a credible exit that a thin trade-buyer market does not.

The tax advantage after 26 November 2025: 50%, not 0%

Here is the change that reframes every older EOT article. At the Autumn Budget on 26 November 2025, the Capital Gains Tax relief on a disposal of a controlling interest to an EOT was cut from 100% to 50%, with immediate effect for disposals on or after that date.

Under the new rule, 50% of the gain on the sale to the trustees is your chargeable gain at the time of sale. The other 50% is not chargeable at sale but is held over and bites on any future disposal of the shares by the trustees. Critically, Business Asset Disposal Relief and Investors' Relief cannot be claimed on the taxable half, so it is taxed at the ordinary CGT rate for shares: 24% for higher and additional-rate sellers, or 18% within any unused basic-rate band, after the £3,000 annual exempt amount.

Guides that still describe a sale to an EOT as entirely tax-free were written before 26 November 2025 and are now wrong. That is the single most important thing to check on any EOT page you read, including a rival adviser's: does it reflect the post-Budget position, or is it selling you a relief that no longer exists at that level?

The figures make the shift concrete. Take an owner selling 100% of a trading company to an EOT:

Item	Figure
Sale value (market value to EOT)	£4,000,000
Original base cost	£200,000
Total gain	£3,800,000
Old rule (pre-26 Nov 2025): 100% relieved	£0 CGT at sale
New rule: chargeable now = 50% × £3,800,000	£1,900,000
Less annual exempt amount	£3,000
Taxable now	£1,897,000
CGT rate (BADR/IR not available on this slice)	24%
CGT payable now	£455,280
Remaining 50% (£1,900,000)	latent gain, bites the trustees on a future disposal

Before 26 November 2025 this exit was tax-free. The same sale today triggers roughly £455,000 of CGT, and leaves a further £1.9m of latent gain sitting inside the trust. The tax advantage is still real, half a large gain escaping charge at sale is meaningful, but it is no longer the killer argument it was, and it now sits alongside a genuine, quantifiable cost. For the full mechanics of the 50% split and the held-over gain, see our EOT tax relief and CGT guide.

The disadvantages: deferred pay and the risk you keep

The advantages are real, but so are the drawbacks, and the biggest one is not tax. It is how, and when, you get paid.

• You are paid over years, not upfront. A trust has no cash of its own. It buys your shares using the company's future profits, so you typically receive a modest sum on completion and the balance as deferred consideration over roughly four to seven years. You are, in effect, lending the business your own sale price.
• You carry the risk until you are paid. If profits fall after you step back, your deferred payments can be delayed or renegotiated. A trade buyer usually funds most of the price on day one and takes that risk off you. In an EOT, you keep it.
• The taxable half is due before the money arrives. The CGT on the chargeable 50% is triggered at sale, but your consideration arrives over years. That timing mismatch needs planning so you are not funding a tax bill out of a payment you have not yet received.
• Complexity and cost. An EOT needs a valuation, a trust deed, a trustee company, tax clearance and ongoing governance. The setup cost is modest against a multi-million-pound sale, but it is real, and the trustee duties continue for years.
• No strategic premium. An EOT pays fair market value, not the inflated price a strategic trade buyer might offer to acquire your customers, technology or market position. If such a buyer exists for your business, an EOT may leave money on the table.

The cash-flow reality: paid from future profits

It is worth dwelling on the funding point because it is where EOT deals most often disappoint sellers who expected a lump sum. The company earns profits, those profits are paid up to the trust, and the trust uses them to pay down what it owes you. Your exit is therefore only as reliable as the trading profits that fund it.

This has three practical consequences. First, an EOT suits businesses with steady, predictable profits far better than volatile or thin-margin ones. Second, you need the business to keep performing after you reduce your involvement, which is exactly why de-risking owner dependence before the sale matters so much. Third, the deferred consideration is usually unsecured or lightly secured, so you should take the same care over the terms as any lender would. The stronger the profit base, the safer your money.

Control and governance change hands

After completion, the controlling interest sits with the trust, and a trustee board (or a corporate trustee) must act in the interests of the employee beneficiaries. You can remain a director and stay influential, but you no longer run the company as your personal property. Decisions that affect employees, from pay to strategy, sit within a governance framework designed to serve them.

For many owners this is a feature, not a bug, because it is precisely the continuity they want. But if your instinct is to keep control until the last payment clears, an EOT will chafe. Post-2024 rules also tightened trustee independence and residence requirements, so the trustee board cannot simply be the former owner in a different hat. Go in expecting to genuinely let go.

Who an EOT is wrong for

An EOT is a strong tool for the right business and a poor fit for others. It tends to be the wrong choice if:

• You need most of your money on completion, for retirement, reinvestment or a personal deadline.
• Profits are volatile or thin, making the deferred consideration genuinely uncertain.
• A trade buyer would pay a strategic premium well above intrinsic value.
• The business is essentially a one-person operation with few employees to own it.
• You want a clean, final break with no ongoing involvement or risk.

If several of those describe you, look hard at a trade sale or a management buyout instead before defaulting to an EOT because of a tax headline that is now half true.

EOT vs MBO vs trade sale for the seller

The honest way to judge an EOT is against the alternatives, on the terms that matter to you: how you get paid, what tax you bear, and how much control and risk you keep.

Factor	Trade sale	EOT	Management buyout
Who buys	External company or investor	Trust, for all employees	Named management team
How it is funded	Buyer's own funds or finance	Company's future profits	Often external acquisition finance plus vendor loan
Payment to seller	Mostly on completion (some earn-out)	Mostly deferred over years	Often part upfront, part deferred
Seller CGT (2026/27)	BADR at 18% on first £1m, then 24%	50% of gain taxed at 24%, no BADR on it	BADR at 18% on first £1m, then 24%
Control kept	None after completion	Phased, then to trustee board	None after completion
Culture and staff	At buyer's discretion	Preserved by design	Usually preserved

Read that CGT row carefully. On the first £1m of gain, a trade sale or MBO seller keeping Business Asset Disposal Relief pays 18%, while the EOT seller pays 24% on the taxable half with no relief. For smaller gains, that can now tip the after-tax comparison towards a trade sale. For larger gains, the EOT's exemption of half the total can still win. The point is that you can no longer assume the EOT is the most tax-efficient route: it has to be modelled. Our selling your business: CGT and BADR guide and the BADR 2026 rate change explainer cover the trade-sale side of that maths.

One important boundary. We explain how these deals are structured and taxed, but we do not arrange, source or introduce the finance that funds a management buyout, which is regulated activity. Advisory on the structure and the tax is what we offer here; any acquisition finance is a matter for an authorised commercial finance broker.

Making the decision

An EOT is neither the tax miracle the old guides promised nor a bad deal. It is a specific tool with a clear profile: best for a profitable, people-heavy business whose owner wants a phased, culture-preserving exit and can afford to be paid over time. The 26 November 2025 change did not kill that case, but it removed the free-lunch tax argument and put a real number, roughly £455,000 on our £4m example, on the cost side of the ledger.

The right way to decide is to model your actual after-tax net proceeds under an EOT, a trade sale and, if relevant, an MBO, using your real gain, your remaining BADR allowance and your income band, and then weigh the money against how much control, continuity and certainty each route gives you. For the wider EOT picture, our employee ownership trust guide is the hub, and the sell my business guide sets EOTs against the other exit routes.

Sources worth reading first-hand: HMRC's Capital Gains Manual on EOT relief (CG67800 onwards), the underlying TCGA 1992 s.236H legislation inserted by Finance Act 2014, the gov.uk Business Asset Disposal Relief guidance, and the House of Commons Library briefing on employee ownership trusts (CBP-10437).

This guidance is general and not a substitute for advice on your own figures. It does not constitute the arranging of finance. Arranging the sale of a company by way of its shares is an exempt activity, but arranging the credit or investment that funds a buyout is regulated and is not something we do.