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.
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Alexia Dirgau
Solicitor Apprentice
Alexia joined Myerson in September 2022 as a solicitor apprentice after finishing her studies at Loreto Sixth Form College in Manchester.
Alexia has completed her first seat in our business administration department where her main responsibilities involved the general support of fee earners and PAs, followed by her second seat in marketing and a third as a Legal PA.
Alexia is currently undertaking one of her legal seats in our Dispute Resolution department.
Alexia will continue moving around the firm through the different departments as she progresses through her 6-year apprenticeship, whilst also studying Law part-time LLB at BPP University.
About Alexia Dirgau