The Benefits of Employee Ownership Trusts (EOTs)

Employee Ownership Trusts (EOTs): A Modern Route to Succession, Shared Ownership & Tax Efficiency 

Employee Ownership Trusts (EOTs) have become a popular and effective succession planning tool for business owners who want to preserve their company culture, reward employees and achieve a smoother exit strategy. With recent changes to Capital Gains Tax (CGT) relief and ongoing benefits such as the annual £3,600 tax free employee bonus, now is an important time for businesses to understand how EOTs work and what advantages they offer.

This article explores how an EOT is structured, the key tax and employee benefits and what the latest legislative changes mean for business owners.

What is an Employee Ownership Trust?

An Employee Ownership Trust is a special form of employee benefit trust that acquires and holds a controlling interest in a company on behalf of its employees. The structure was introduced in 2014 to encourage broader employee ownership, preserve business continuity and provide a viable succession route for founders. Once established, the trust holds the majority shareholding permanently for the benefit of all employees, creating long term stability and alignment between employer and workforce.

The structure of EOTs 

A typical EOT structure includes:

• A newly formed trust that acquires more than 50% of the company’s shares. 
• Trustees (often a combination of an independent trustee, an employee trustee and sometimes a founder representative trustee) who will protect the interests of the employees. 
• The trading company continues to operate as normal, with its profits commonly used to fund deferred consideration payments to the former owners. 

It is important that the business has a separate management team that is distinct from the departing founder owners. This is because, following the sale to the EOT, the founder will typically reduce or fully exit their day to day involvement and the company must be able to continue trading on a stable and independent basis.

Lenders and trustees will expect to see that operational control sits with a capable management team that can run the business and generate sufficient profits to service any deferred consideration owed to the former owners. Without a clear separation between ownership and management, there is a risk that the business is overly reliant on the founder.

EOT ownership must meet strict requirements, including benefiting all employees on the same basic terms and ensuring the company remains controlled for the benefit of employees. You can find out more about these requirements here - https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim03050

Tax Benefits (Capital Gains Tax) in 2026

Historically, the selling shareholders could benefit from 100% Capital Gains Tax (CGT) relief when selling their shares to an EOT. However, this relief has now been reduced to 50% for disposals completing on or after 26 November 2025, following the 2025 Budget. This means 50% of the gain is taxable upfront, with the remaining 50% exempt unless and until the EOT disposes of the shares. Even with recent changes, this is a more favourable position than other alternative exit routes, such as trade sales or private equity. It is important to consider that the EOT will need to have sufficient funds to buy out existing shareholders. It is likely that this will be paid over a period of time (often via deferred consideration) and therefore appropriate security and ongoing involvement in the business may need to be considered. 

Employee Benefits: £3,600 Tax Free Annual Bonus 

Businesses controlled by an EOT can pay each eligible employee up to £3,600 per year tax free, provided certain conditions are met. The exemption applies to income tax only; National Insurance contributions remain payable.

Benefits for Business Owners and Employees 

Business owners benefit from a smoother exit, allowing owners to step back gradually while ensuring the business remains in trusted hands. It promotes long term stability and even with the reduced 50% CGT relief, the tax benefit can remain advantageous.

Employees feel connected to the business, thereby creating a culture of collaboration and shared success. Evidence shows that employee owned businesses tend to have higher productivity, lower staff turnover and better performance during economic downturns.

Want to know more or start the transition? 

Despite the reduction in CGT relief from 100% to 50%, Employee Ownership Trusts remain one of the most attractive succession planning options for UK business owners. With significant tax benefits, enhanced employee engagement and a smooth transition path for founders, EOTs continue to provide a powerful mechanism for securing a company’s future.

If you are thinking about moving to an Employee Ownership Trust, it may be helpful to speak with specialist tax advisers or accountants who can review your business and advise on your options. Our Corporate and Commercial team at Neves Solicitors would be happy to support you and guide you through the process at every stage. You can get in touch with our team by calling 0330 0945 500, emailing info@neves.co.uk or completing our contact form and we'll get back to you. 

Please note that the tax position and contents of the article were correct at the time of writing (April 2026).