EOT Tax Relief and CGT: How the New 50% Rule Works

At the Autumn Budget on 26 November 2025, the Capital Gains Tax relief on a sale of a controlling interest to an Employee Ownership Trust (EOT) was cut from 100% to 50%, with immediate effect. For years, selling to an EOT was pitched as the zero-CGT exit: give your company to a trust for the benefit of your employees, and pay no Capital Gains Tax at all. That headline is now only half true, in the most literal sense.

This page is the detailed tax version. It sets out exactly how the new 50% charge works, why Business Asset Disposal Relief cannot rescue the taxable half, what happens to the other half of the gain, and how the employee bonus and trust-level taxes sit around it. For what an EOT is and how the wider structure works, see our employee ownership trust guide. For the general Capital Gains Tax and BADR mechanics on a normal sale, we link out to our CGT and BADR guide rather than repeat them here.

This guidance is general and reflects the position for disposals in 2026/27. Your own figures will differ, so have them modelled before you sign anything.

The headline change: 100% to 50% from 26 November 2025

Under the old rules, a qualifying disposal of a controlling interest to an EOT was fully relieved from Capital Gains Tax. The whole gain was treated as arising and disposed of on a no gain, no loss basis, so the seller paid nothing. That is the version of the story still sitting on a large number of adviser websites, valuation blogs and "sell your business tax-free" pages.

For any disposal to an EOT completed on or after 26 November 2025, that is no longer the law. The relief now covers only 50% of the gain. The remaining 50% is your chargeable gain in the year of sale. The change was announced at the Autumn Budget and delivered through the Finance Bill 2025-26. HM Treasury's stated reason was cost: the relief had grown to roughly £2 billion a year, around twenty times its original 2013 costing.

The trigger is the date of disposal, which for a share sale is normally the date the contract becomes unconditional. Deals that completed before 26 November 2025 keep the old 100% relief. Deals still open on that date fall under the new rule. There was no transitional window, so completion timing suddenly matters a great deal.

How the 50% charge works: chargeable now versus held over

It helps to think of your gain as being split into two halves.

• The taxable half (50%). This is your chargeable gain at the point of sale. It is taxed in the tax year the disposal falls into, at the ordinary CGT rate for shares (see below), after deducting your £3,000 annual exempt amount.
• The relieved-but-held-over half (50%). This is not taxed on you at sale. It is effectively held over. It does not vanish: it becomes a latent gain that can crystallise on the EOT trustees when they later dispose of the shares.

So the reform is more accurately described as 50% relief plus 50% deferral, rather than a straight halving of a one-off exemption. You are taxed on one half now, and the other half is parked inside the trust to be dealt with on a future disposal. That second point catches people out, because the old relief was genuinely final. The new relief is not.

Worked example: a £4m sale under the new rule

Take an owner selling 100% of a trading company to an EOT. The figures below are the ones we use across all our EOT content so the numbers stay consistent.

Item	Figure
Sale value (market value to the 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 (on or after 26 Nov 2025): chargeable now = 50% × £3,800,000	£1,900,000
Less annual exempt amount	£3,000
Taxable now	£1,897,000
CGT rate (BADR and Investors' Relief not available on this slice)	24%
CGT payable now	£455,280
Remaining 50% (£1,900,000)	Latent gain held over onto the trustees; bites on their future disposal

Before 26 November 2025 this exit was tax-free. The same sale today triggers roughly £455,000 of Capital Gains Tax, and leaves a further £1.9m of latent gain inside the trust. That is the single most important number for anyone still weighing an EOT against a trade sale.

Why BADR and Investors' Relief cannot rescue the taxable half

A natural question is whether you can point your Business Asset Disposal Relief at the taxable 50%. You cannot. The reform specifically blocks both Business Asset Disposal Relief and Investors' Relief on the chargeable slice of an EOT disposal. So the taxable half is charged at the full ordinary CGT rate for shares, with no reduced rate available.

For 2026/27 that ordinary rate is 24% for higher and additional rate sellers, or 18% to the extent any of your basic rate band is unused in the year. Most owners selling a multi-million-pound company are firmly in higher-rate territory, so 24% is the realistic figure. By contrast, BADR gives an 18% rate within its £1 million lifetime limit (up from 14% in 2025/26), but only on a qualifying trade sale or share sale, not on a sale to EOT trustees. For the BADR conditions and how the relief works on a normal disposal, see our Business Asset Disposal Relief explained page and the BADR 2026 rate change article.

The practical effect is stark. On a normal share sale, the first £1 million of gain could be sheltered at 18% under BADR. On an EOT sale, none of the taxable half gets that rate. The blocked reliefs are a big part of why the effective tax cost of an EOT jumped so sharply on 26 November 2025.

The latent 50% gain and the trustees' future disposal

The half of the gain that escapes tax on you at sale is not written off. It is held over, which means it is carried forward as a latent gain attached to the shares now held by the trust. If the EOT trustees later dispose of the controlling interest, for example on an onward trade sale of the company, that held-over gain can crystallise in the trustees' hands, on top of any growth in value since your sale.

This matters for two reasons. First, it means the total tax across the whole life of the deal is higher than the £455,280 headline, once you count the eventual trust-level charge. Second, it changes who bears that later tax: the trustees, funded ultimately from company value that belongs to the employees. When you compare an EOT with a straight trade sale, weigh the deferred half as a real future liability, not a saving.

The employee income-tax-free bonus (£3,600)

One thing the reform did not touch is the employee bonus. A company controlled by a qualifying EOT can pay each eligible employee a bonus of up to £3,600 per tax year free of income tax. National Insurance still applies, both employer and employee sides, so it is income-tax-free rather than entirely tax-free.

The bonus generally has to be offered to all employees on similar terms, although the amount can be varied by reference to length of service, hours worked and remuneration. For many owners this is a genuine part of the appeal of employee ownership, and it survives the CGT change intact. It is a benefit for the workforce, though, not a route to extract value for the departing owner.

Inheritance tax and CGT on the trust itself

Setting up an EOT correctly still carries favourable inheritance tax treatment. Transferring a controlling interest to a qualifying EOT is generally not a chargeable transfer for IHT, and the trust sits outside the usual relevant-property IHT charges while it continues to meet the statutory conditions. The 26 November 2025 measure was confined to the seller's Capital Gains Tax relief and left the IHT position alone.

At trust level, the key CGT point is the one already covered: the held-over half of your gain is latent inside the trust and can crystallise on a future disposal by the trustees. All of these reliefs depend on the trust meeting and continuing to meet the qualifying conditions (a controlling interest in a trading company, held for the benefit of all employees, with the participator and other limits respected). Fall out of the conditions and the reliefs can be clawed back, so the structure has to be set up and run properly. Our guide to setting up an EOT walks through the conditions and the timeline.

EOT tax versus a straight trade sale

Because BADR is blocked on the EOT and available on a trade sale, the two routes now produce very different tax outcomes on the same business. On the £4m example, the EOT gives roughly £455,280 of CGT at sale plus a deferred half. A conventional third-party sale would instead use BADR on the first £1m of gain at 18%, with the balance at 24%, all final, and leaves nothing latent in a trust.

That does not automatically make a trade sale better. A trade sale needs a willing external buyer, often involves an earn-out, and hands control to someone outside the business. An EOT gives a ready buyer, a phased and friendly exit, and continuity for the team. The point is simply that the tax case for an EOT is no longer the deciding factor it once was. For the full route-by-route comparison, including winding up and family succession, see our tax when selling a business comparison page.

What older guides get wrong now

If you have been researching EOTs, you will have seen pages describing a sale to an EOT as "completely free of Capital Gains Tax", "0% CGT", or "the tax-free exit". Guides that still say a sale to an EOT is entirely CGT-free were written before 26 November 2025 and are now wrong. They describe a relief that no longer exists for new disposals.

The current position, for any disposal on or after 26 November 2025, is: 50% of the gain is relieved and held over, 50% is chargeable now, BADR and Investors' Relief cannot touch the chargeable half, and it is taxed at 24% (or 18% within any unused basic rate band) after the £3,000 annual exempt amount. If a source tells you otherwise, check its date.

None of this makes an EOT a bad idea. It makes it a decision that now needs proper modelling rather than a headline. We provide unregulated exit and succession advisory, and an accountant can model the new 50% charge against your alternatives, so you go into heads of terms knowing the real after-tax number. Please note we advise on the structure and the tax only; we do not arrange, source or introduce any finance, as arranging acquisition or buyout finance is regulated credit-broking handled by an authorised commercial finance broker. To model your position, get in touch.

Authority and further reading: HMRC Capital Gains Manual CG67800 (EOT relief); the underlying legislation at TCGA 1992 s.236H onwards, inserted by Finance Act 2014, Schedule 37; the House of Commons Library briefing on Employee Ownership Trusts (CBP-10437); gov.uk on Business Asset Disposal Relief; and gov.uk Capital Gains Tax rates and annual exempt amount.