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 changes to the relief and consider why EOTs remain attractive for current business owners as a form of succession planning.
Rationale for the changes to CGT relief for EOTs
EOTs were established in 2014 to promote employee ownership as a business model in the UK and tax reliefs were introduced by the Finance Act 2014 to benefit the selling shareholders on the sale of shares to an EOT and the company's employees, to encourage adoption of the model.
One of the principal advantages for selling shareholders who sell their shares to an EOT is the favourable tax treatment. Provided certain requirements were adhered to both at the time of the disposal and post-disposal, shareholders who sold their shares in a company to an EOT were previously able to obtain 100% relief from CGT.
In recent years, we have seen employee ownership become increasingly prevalent, with EOTs gaining traction as an ownership structure due to the significant benefits they offer to both current owners (the selling shareholders) and the business's employees.
As a result, the cost of the CGT relief to the UK Treasury has increased significantly, with the cost reaching £600 million in 2021-22 and forecasts suggesting it could rise to £2 billion by 2028-29 which has prompted the change in Government policy.
As a result of the measures announced in the Budget, 50% of gains (being in essence the profit on the sale of the shares) on qualifying disposals to an EOT will be treated as chargeable gains and will therefore be subject to CGT, the remaining 50% of gains will continue to qualify for relief from CGT, provided certain requirements are adhered to.
What are the CGT relief requirements?
To benefit from the CGT relief, strict requirements must be adhered to at the time of the disposal and post-disposal, some of which include:
- The current shareholders must cease to have control of the company and the EOT must acquire more than 50% of the issued share capital of the company;
- The benefit derived from the EOT must be to all employees (subject to limited exceptions) and must be on the same terms. Although employees can receive different amounts depending on their length of service, hours worked, and remuneration, but this requires careful planning to ensure it aligns with the equality principles of the EOT legislation; and
- Other conditions, including that the company is a trading company, as well as a requirement that the number of directors or employees who own 5% or more of the share capital of the company must not exceed 40% of the total number of employees of the company or group.
These rules require careful consideration, and tax advice should be sought as there are additional nuances to each of them. However, subject to the satisfaction of the criteria, the selling shareholders would qualify for relief from CGT on 50% of the gains on the disposal of their shares.
How we can assist
Myerson’s corporate team has extensive experience advising clients of different sizes across a variety of sectors on establishing and implementing EOTs.
Myerson Solicitors successfully transitioned to 100% employee ownership in September 2024 and recently won ‘Transition of the Year’ in the Employee Ownership Awards 2025, hosted by the Employee Ownership Association (EOA).
If you would like further information about EOTs or if you would like to discuss how we can help you with EOTs, please don't hesitate to contact a member of our Corporate Team.
Speak to our EOT Specialists
If you're considering whether an Employee Ownership Trust could be the right succession route for your business, or would like tailored advice on how the recent Budget changes may affect your plans, our expert Corporate Team is here to help.
0161 941 4000
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Kiera Goodwin
Solicitor
Kiera is a Solicitor in the Corporate team at Myerson and a member of the Financial Services and Manufacturing teams. Kiera has experience in a variety of corporate matters, including employee ownership trusts, share sales, share buybacks, employee share option schemes, company reorganisations, and other general corporate matters.
About Kiera Goodwin