How to Set Up an EOT: A Step-by-Step Guide for 2026

Setting up an Employee Ownership Trust, or EOT, lets you sell a controlling stake in your company to a trust that holds the shares on behalf of your staff. It is a genuine exit, you get paid for your business, but ownership passes to the workforce rather than to a trade buyer or a private-equity backer. For the right company it preserves culture, rewards the people who built the value, and avoids a competitive sale process.

The mechanics are precise and the tax rules changed materially at the end of 2025. This guide walks through the qualifying conditions, the trustee structure, valuation, funding, clearance, a realistic timeline and typical costs, so you know what an EOT actually involves before you commit. We are an unregulated exit and succession advisory working alongside your accountant and solicitor. This is general guidance, not advice on your specific figures.

The one thing to fix in your head first: EOT sales are no longer CGT-free

For years the pitch for an EOT led with a single headline: sell to the trust and pay no Capital Gains Tax. That is no longer true. At the Autumn Budget on 26 November 2025, the CGT 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 current rule, 50% of your gain on the sale to the trustees is your chargeable gain at the time of sale. The other 50% is not taxed at sale but is effectively held over and becomes chargeable on the trustees' future disposal of the shares. 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 say a sale to an EOT is entirely tax-free were written before 26 November 2025 and are now wrong. If your plan was built on a 0% CGT assumption, rebuild it. We cover the full mechanics on our EOT tax relief and CGT page, and the general BADR and CGT-on-exit position on the selling your business CGT guide.

Step 0: check you meet the qualifying conditions

None of the rest matters until the company and shareholders qualify. The EOT reliefs are conditional, and a breach can pull the relief back even after completion. The core conditions are:

• Trading company condition. The company must be a trading company, or the principal company of a trading group. Substantial investment activity, large surplus cash held as an investment, or significant let property can put trading status at risk. This is a question of fact and often needs cleaning up before a sale.
• Controlling interest. The trust must acquire and keep a controlling interest: more than 50% of the ordinary share capital, more than half the voting rights, and an entitlement to more than half the profits and assets. A minority sale does not qualify, and losing control later can withdraw the relief.
• All-employee benefit. The trust must benefit all eligible employees broadly on the same terms. Awards can be varied by length of service, hours worked and remuneration, but you cannot cherry-pick a favoured group.
• Limited participation. An anti-concentration rule stops directors and shareholders who owned the company, together with people connected to them, from making up a disproportionate share of the workforce and effectively capturing the trust for themselves.

Get these confirmed by your accountant and solicitor at the outset. Discovering a trading-status or participation problem after you have drafted documents is expensive and delays everything.

Step 1: get an independent valuation

Because the trustees are buying on behalf of the employees, they cannot overpay. The trustees have a duty not to pay more than market value, and a robust, independent valuation protects both sides and underpins the tax position. Overpaying can create tax problems and expose the trustees to challenge.

Valuation of a private trading company is a range, not a single number, and usually rests on a multiple of maintainable earnings adjusted for surplus assets and debt. We cover the methods in the business valuation guide. For an EOT specifically, expect a conservative, defensible figure rather than the punchy number a competitive trade auction might produce, precisely because the trustees must be able to justify the price paid with the company's own future cash.

Step 2: build the trustee structure and draft the trust deed

The trust is almost always run through a corporate trustee: a newly incorporated company whose board acts as the trustee. That board structure is now heavily regulated, so this is not a formality.

Following the reforms that took effect across 2024 and 2025, the former owners and persons connected to them cannot make up more than half of the trustee board. In practice a typical board mixes an outgoing owner (in a minority), one or more elected employee representatives, and frequently an independent professional trustee to hold the balance. The trustees must also be UK resident as a single body of persons at the time of disposal, closing the previous route of using offshore trustees to shelter the held-over gain.

The trust deed sets out how the trust operates: the all-employee benefit terms, how trustees are appointed and removed, how the acquisition debt is serviced, and how any future distributions or bonuses are decided. This is bespoke legal drafting. Do not use a generic template, because the qualifying conditions have to be reflected precisely in the deed.

Step 3: complete the sale and plan the funding

The trust rarely has cash to buy the company outright, so the purchase is typically funded from the company's future profits. The mechanism is usually a mix of an upfront payment (from existing company cash reserves) and deferred consideration, with the balance owed to the seller as a loan that the trust repays over several years out of post-tax profits the company contributes to it.

That is the trade-off at the heart of an EOT: you get a full price, but you are often paid over time and you carry some risk on the deferred element while the business continues to perform. Model the company's ability to service the deferred consideration realistically before you sign, because an over-geared structure can starve the business of investment.

A note on funding boundaries. This page explains how an EOT purchase is structured and typically funded from company profits. We do not arrange, source or introduce any external finance or investment that a buyout might use, because arranging that credit is regulated activity. Where third-party finance is involved, an authorised commercial finance broker handles it. Our role is the exit and succession structuring, which is exempt advisory work.

Step 4: HMRC clearance and reporting

There is no single mandatory sign-off, but most EOT transactions seek advance clearance from HMRC to confirm the anti-avoidance provisions will not apply and that the arrangements are commercial. Clearance gives certainty before completion, which matters when the whole CGT treatment depends on the conditions being satisfied.

The disposal is then reported through your self assessment return for the year of sale, with the chargeable 50% declared and the tax paid to the usual CGT deadlines. The trustees take on their own filing and administrative obligations from completion onward. The conditions continue to matter after the sale: a breach in the tax year of disposal or the following tax year can trigger a clawback of relief, so ongoing trustee governance is part of protecting the deal you set up.

Timeline: what three to six months actually looks like

A straightforward EOT completes in three to six months. Complexity, multiple shareholders, property in the company or disagreements on price extend it. A realistic timeline looks like this:

Stage	Typical timing	What happens
Month 0	Weeks 1-2	Feasibility and tax review: confirm trading status, controlling interest and participation conditions; model the new 50% CGT charge; agree the outline structure.
Month 1	Weeks 3-6	Independent valuation and financial due diligence; agree headline price and the split of upfront versus deferred consideration.
Months 2-3	Weeks 6-12	Incorporate the trustee company; draft the trust deed and share purchase agreement; design the funding and repayment profile.
Month 3-4	Weeks 10-16	Apply for HMRC clearance; finalise documents; brief employees on the transition.
Month 4-6	Completion	Sign and complete the share sale to the trust; make the upfront payment; begin the deferred repayment schedule; report the disposal.

Rushing to hit a deadline is the single most common way to breach a condition. Build in contingency rather than compressing the structure.

What it costs

Professional fees for a standard EOT typically run from around £20,000 to £60,000, covering the independent valuation, legal drafting of the trust deed and share purchase agreement, tax structuring and clearance work. Larger groups, several shareholders or property holdings push that higher. There are then ongoing annual costs for trustee administration, accounts, trustee meetings and continued advice.

Set those costs against the economics. On a substantial sale the setup fee is small next to the transaction and the tax at stake, and the £3,600-per-year income-tax-free employee bonus that an EOT-controlled company can pay is a lasting benefit. But an EOT is not a cheap way to sell a small company, and if the numbers are modest the fixed costs weigh more heavily. Weigh it against a straight trade sale, where BADR at 18% on the first £1,000,000 of gain may leave you better off overall now that the EOT relief is only 50%.

Common mistakes to avoid

• Assuming it is still tax-free. The 50% charge is now the biggest single number in the plan. Model it before you decide.
• Ignoring trading status. Surplus cash or investment property can cost you the relief entirely. Deal with non-trading assets before the sale, not after.
• A former-owner-controlled board. The tightened rules mean the seller and connected persons cannot control the trustee board. A structure that leaves you in charge fails.
• Over-gearing the deferred consideration. If the company cannot comfortably service the loan out of profits, both the business and your payout are at risk.
• Skipping clearance. Certainty before completion is worth having when the entire CGT treatment hangs on the conditions.
• Treating it as done at completion. The conditions keep applying. A breach in the year of disposal or the next tax year can claw the relief back.

Is an EOT still the right exit?

For an owner who wants to reward staff, keep the business independent and step back over a few years, an EOT is still a strong route, even at 50% relief. The income-tax-free employee bonus, the cultural continuity and the avoidance of a competitive sale process are real advantages that a trade sale cannot match. But the tax case is no longer a knockout, and the honest comparison against a trade sale with BADR or another route is now essential. See our EOT pros and cons for the balanced decision, and the employee ownership trust guide for the full picture.

Reading and legislation used in this guide: HMRC's Capital Gains Manual on EOT relief (CG67800 onwards); the EOT CGT relief in TCGA 1992 sections 236H to 236U, inserted by Finance Act 2014, Schedule 37; the Autumn Budget 2025 measures reducing the relief to 50%; the House of Commons Library briefing on Employee ownership trusts (CBP-10437); and gov.uk on Business Asset Disposal Relief.

Setting up an EOT is unregulated exit and succession advisory work, exempt under the sale-of-a-body-corporate rules, and we do not arrange any acquisition finance. If you are weighing an EOT and want the qualifying conditions checked and the new 50% CGT charge modelled against your figures before you commit, get in touch to book an exit tax review, and we will bring in an accountant for the CGT and BADR planning.