Key takeaways
Employee Ownership Trusts remain one of the most tax-efficient and sustainable exit strategies for shareholders. The benefits include increased performance of the companies owned by these trusts, employee governance, and preserving legacy and culture of the companies.
What is an Employee Ownership Trust?
An Employee Ownership Trust, or EOT for short, is a type of discretionary trust. A discretionary trust is held for a class of persons who are not individually named as the beneficiaries. The trustees have discretion in exercising their powers to benefit any particular person within that class.
An EOT is established by a company to acquire and hold a controlling interest in that company. It is managed by trustees for the benefit of the employees of the company. This structure is used to institute indirect employee ownership.
Previously, shareholders who sold their interest to an EOT enjoyed a full exemption from the Capital Gains Tax in respect of such transactions. This made EOTs a very attractive exit strategy.
However, following the Autumn Budget 2025, the relief was reduced from 100% to 50% of the gain for qualifying disposals made on or after 26 November 2025.
Following this news, shareholders may ask themselves if EOTs are still worth it. The answer to this question is that the EOT model is still a competitive exit strategy for the following reasons.
For shareholders considering their options more broadly, read our article on how to prepare a UK SME business for sale.
Can Employee Ownership Trusts improve company performance?
According to the research conducted for the Employee Ownership Knowledge Programme in 2023, employee-owned businesses are 8 to 12 per cent more productive than their counterparts with reference to Gross Value Added per employee. These businesses tend to reinvest more in their employees and in innovative methods than other companies.
How do Employee Ownership Trusts give employees a greater voice?
Employees in companies owned by EOTs have more of a say in how the company is run. It is not uncommon for employees to vote to appoint a colleague to sit on the board of trustees or the board of directors of the company. This brings fresh perspectives to the company’s management, supporting innovation and sustainable growth.
What are the tax benefits of an Employee Ownership Trust?
Distributing benefits to the employees through EOTs is especially tax efficient because every employee can receive a bonus of £3,600 annually free of any income tax. Therefore, this system encourages equal distribution among employees of a company and decreases the effective tax burden on the business by ensuring that rewards received by the employees are tax efficient.
Such benefits can also help the company retain its talent pool by providing stable incentives to stay at the company. Coupled with options to purchase shares in the company, such incentives will give employees motivation to work harder and be fairly rewarded for it.
How can an Employee Ownership Trust preserve legacy and company culture?
Many business owners would like to see their business and the culture they built along with it thrive even after they exit it.
Selling to an individual investor may result in the new owner downsizing the business or relocating it elsewhere to maximise profits. An EOT, on the other hand, provides a sustainable avenue for transition of ownership.
Since an EOT is bound by a duty to its beneficiaries, it will make business decisions with the interests of the employees in mind, preserving the culture of the company. Additionally, the original business owner may still retain some role in the company’s governance by sitting on the board of trustees.
For owners focused on succession and preserving a business over the long term, read our article on managing family business succession.
Especially in the context of ESG commitments, trustees of EOTs who are not benefitting directly from the company’s profits can ensure that further expansion aligns with environmental principles and the welfare of the company’s employees.
Are Employee Ownership Trusts still attractive after the 2025 tax changes?
These benefits and the current 50% relief on Capital Gains Tax make a sale to an EOT an attractive exit strategy for shareholders who wish to ensure a stable, sustainable, and economically efficient transfer of ownership.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
[View Source]