In the highly anticipated 2025 Budget, Chancellor Rachel Reeves reported that the Capital Gains Tax (CGT) relief available to selling shareholders on a transfer of shares to an Employee Ownership Trust (EOT) has cost the Treasury far more than anticipated when the relief was introduced in 2014.
As a result, and without trialling it, the 100% CGT relief available to shareholders selling their shares to an EOT was reduced to 50% with effect from 26 November 2025.
This means that only half of the gain arising on a qualifying sale to an EOT will now be exempt from CGT.
This represents a significant shift in the tax landscape for EOT transactions and will be an important consideration for business owners exploring or preparing for a transition to employee ownership.
In this article, our Employee Ownership Trust lawyers explore what the changes mean in practice and whether EOTs remain an attractive succession planning option for business owners.
Capital Gains Tax Changes Do Not Diminish the Value of Converting to EOT Ownership
While tax is always an important factor in succession planning, the reduction in CGT relief should not, in itself, deter business owners from pursuing an EOT structure as a form of succession planning.
For many, the decision to transition to employee ownership is driven by broader strategic priorities such as preserving independence, protecting the company’s culture, rewarding employees, and securing long‑term stability rather than tax alone.
Although the financial modelling of EOT transactions will require updated consideration in light of the new 50% relief, the fundamental commercial, cultural, and succession‑planning advantages remain compelling.
Employee‑owned businesses continue to outperform non‑employee‑owned counterparts, with studies consistently finding productivity benefits of around 8–12%. When employees have a genuine stake in the business, motivation, engagement, and job satisfaction typically increase.
Why EOTs Are Still Financially Attractive
Although the CGT exemption has been reduced, a sale to an EOT still offers a materially lower effective CGT rate for most sellers.
- On a third‑party sale, the CGT rate is 24%, or 14% on the first £1 million if Business Asset Disposal Relief (BADR) is available (BADR is increasing to 18% from 6 April 2026) and then 24% on anything above that first £1 million.
- By comparison, the effective CGT rate on a sale to an EOT is now effectively 12% on all gains for the majority of sellers; it should be noted that BADR is also not available to selling shareholders on a sale to an EOT.
Even with the revised relief, this remains a significant tax incentive and continues to make EOTs an appealing and competitive succession route for business owners.
Planning Considerations
EOT transactions are typically self‑funded, with the purchase price paid over several years using the company’s future distributable profits (although third‑party finance may also be available).
As such, the timing of completion and structure of deferred consideration become increasingly important.
The CGT payable on a sale of shares is normally due on (or before) 31 January following the end of the tax year in which the sale completes.
To maximise the time available to receive instalments before CGT becomes payable, business owners should consider scheduling completion as early as possible following the start of a new tax year.
For example:
Completing on or immediately after 6 April 2026 rather than on or before 5 April 2026 provides an additional 12‑month deferral before the CGT payment is due with tax payable on or before 31 January 2028 as opposed to 31 January 2027.
It is also possible to agree a CGT instalment plan with HMRC, but advice should be sought from a tax adviser as this is subject to eligibility and HMRC discretion.
Careful Planning Remains Key
In summary, careful planning of the transaction timetable and the structure of the consideration is essential to ensure a smooth transition, allowing shareholders to manage their tax obligations effectively while aligning the sale with the company’s cash flow profile and longer‑term strategic objectives.
Contact Our Employee Ownership Trust Lawyers
If you are considering an Employee Ownership Trust as part of your succession planning, it is important to take advice at an early stage.
Our Employee Ownership Trust lawyers can guide you through the legal, tax and structuring considerations to help ensure a successful transition to employee ownership.
More EOT News and Advice
Beyond the EOT Transaction: Two Years of Employee Ownership at Myerson
In September 2024, Myerson was the first law firm in Greater Manchester to move to an Employee Ownership Trust and is one of only a small number of law firms in the UK operating under this model. Two years on, becoming employee-owned continues to be a long-term commitment to our people, culture, and sustainable growth. Myerson proudly won...
Read Blog
Are Employee Ownership Trusts Still Worth Considering After the 2025 Capital Gains Tax Changes?
In the highly anticipated 2025 Budget, Chancellor Rachel Reeves reported that the Capital Gains Tax (CGT) relief available to selling shareholders on a transfer of shares to an Employee Ownership Trust (EOT) has cost the Treasury far more than anticipated when the relief was introduced in 2014. As a result, and without trialling it, the 100% CGT...
Read Blog
EOT Disputes: What Happens When Employee Ownership Goes Wrong?
Employee Ownership Trusts (EOTs) offer a great succession route for selling shareholders and can offer long-term business stability, but they are not always smooth sailing. EOT Disputes can arise for a variety of reasons, including disagreements over the valuation of the company at the date of the transaction, disagreements over the governance of...
Read Blog
UK Budget 2025: Announcement Round-Up & Expert Analysis
Rachel Reeves has just delivered her second Budget since becoming Chancellor. However, the build-up to the statement was unusual this year. Many measures were announced in advance, and a large portion of the details were revealed early by accident when the Office for Budget Responsibility mistakenly published its forecast. Despite the early...
Read Blog
Budget 2025: Capital Gains Tax Relief Changes For Employee Ownership Trusts
Yesterday, Chancellor Rachel Reeves delivered the much-anticipated Budget and announced that, with effect from 26 November 2025, the Capital Gains Tax ( CGT ) relief available to selling shareholders on disposal of their shares in a company to an Employee Ownership Trust ( EOT ) is to be reduced from 100% to 50% . Our EOT Lawyers examine the...
Read Blog
Who Are The Trustees of an EOT?
Transitioning to an Employee Ownership Trust (EOT) structure is a significant step for any business. It involves not only the transfer of shares but also the appointment of trustees who are tasked with safeguarding the long-term success of the trust for the benefit of employees. Understanding the role, duties, and best practices of EOT trustees...
Read Blog
Alexia Dirgau
Trainee Solicitor
Alexia joined Myerson in 2022 as a Solicitor Apprentice and has been developing her legal knowledge and practical experience alongside her studies at BPP University. Her apprenticeship has provided her with a unique opportunity to learn through hands-on experience, working closely with colleagues across the firm while progressing towards qualification as a solicitor.
Alexia spent her first year in the Business Services team, where she gained valuable insight into how a law firm operates and developed a strong understanding of the importance of collaboration and client service. This experience provided an excellent foundation for her legal career and helped her build skills that she continues to apply in her work today.
Since then, Alexia has completed seats in Commercial Property, Commercial Litigation and Corporate, giving her exposure to a broad range of legal matters and allowing her to develop experience across both transactional and contentious work. These seats have helped her build a well-rounded understanding of the legal and commercial issues faced by individuals and businesses.
Alexia is currently undertaking a seat in the Probate Litigation team, assisting on a variety of contentious trusts and estates matters, including inheritance disputes and challenges relating to wills and estates. She particularly enjoys the variety of the work and the opportunity to help clients navigate what are often complex and sensitive situations.
One of the aspects Alexia enjoys most about her role is the collaborative nature of legal practice. She enjoys working closely with colleagues across different teams, drawing on a range of expertise to provide practical solutions for clients. Working alongside talented lawyers in a supportive environment has enabled her to develop both professionally and personally throughout her apprenticeship.
About Alexia Dirgau