Employee ownership trusts, explained for owners
What an EOT actually involves, how you get paid, where the tax now stands after the 2024 and 2025 Budget changes, and who it genuinely suits.
An employee ownership trust is a way of selling your business to the people who already run it. The trust buys a controlling stake on behalf of every employee, and it pays you out of the profits the business makes afterwards.
It has become a genuine third option alongside a trade sale and a management buyout. It is not the right answer for everyone, and the tax case for it is weaker than it was two years ago. This page sets out what it actually involves, who it suits, and what you are signing up to.
What an EOT actually is
A trust is set up. Your company makes contributions to that trust out of its future profits. The trust uses that money to buy more than half your shares from you, at a price an independent valuation supports.
The employees do not buy anything and do not put money in. They become indirect owners through the trust rather than shareholders in their own right. Nobody gets a share certificate, and nobody can sell their stake when they leave.
It was introduced in 2014 to encourage wider employee ownership. The mechanism has been stable since then. The tax treatment has not.
How the money moves
The mechanism, in four steps.
The problem it solves
Most owners who look at an EOT are in one of three positions.
There is no obvious buyer. The business is too small for private equity, too specialised for a trade buyer, and the competitors who might want it are the last people you would show your customer list to.
You care what happens afterwards. You have people who have been with you twenty years and a trade buyer who will run a synergies exercise in month three. An EOT removes that.
The management team cannot fund a buyout. They have the ability but not the money, and you would rather not watch them take on personal guarantees to buy something they already run.
What an EOT does not solve is needing your money quickly. That is the single biggest misunderstanding about them.
How you actually get paid
Usually over several years, out of profits the business has not yet made.
There is often an initial payment on completion, sometimes funded by third party debt. The rest sits as deferred consideration, an amount the trust owes you, paid down as the company generates cash. Five to seven years is common.
Which means your outcome depends on the business continuing to perform after you have stopped controlling it. If trading falls away, the payments slow. You are an unsecured creditor of a company you no longer run, and that is a materially different position from taking cash from a trade buyer on completion day.
The honest summary: an EOT usually gets you a fair price and a good outcome for your staff, in exchange for accepting payment risk and waiting. A trade sale usually gets you certainty, faster, with less control over what happens next.
The tax position, and why it has changed
This is the part where most of what you will read online is out of date.
For disposals on or after 26 November 2025, 50 per cent of the gain is relieved from capital gains tax and 50 per cent is chargeable. Neither Business Asset Disposal Relief nor Investors’ Relief can be claimed on the chargeable half. For a higher or additional rate taxpayer that produces an effective rate of around 12 per cent.
Before 26 November 2025, a qualifying disposal was fully exempt from capital gains tax. That is the regime almost every article still describes.
Twelve per cent is still a good rate. It is not the zero it was, and if the tax relief was the main attraction rather than the outcome for your people, the case is meaningfully thinner than it looks in older guidance.
Rates and reliefs change, most recently at the 2024 and 2025 Budgets. Nothing here is tax advice and the position depends on your circumstances. The figures need an accountant to confirm before you rely on any of them.
The four year clawback, and why it matters more than the rate
Changes taking effect from 30 October 2024 extended the period during which your relief can be withdrawn. It now runs to the end of the fourth tax year following the tax year of the disposal.
Sell early in a tax year and you can be exposed for close to five years.
If a disqualifying event happens in that window, your relief can be withdrawn and the tax becomes payable. The events that cause it are largely within the control of the trustees, the company and its management, not you, because by then you have sold control.
That is the risk to weigh, and it is the reason EOT volumes have fallen. Only 90 trusts received tax clearance in the first quarter of 2026, the lowest quarterly figure since 2022, after owners rushed to complete ahead of each Budget.
The conditions that have to be met
Four main ones, and they have to keep being met after completion, not just on the day.
- Trading requirement. The company has to be a trading company or the holding company of a trading group.
- Controlling interest. The trust has to acquire and keep more than 50 per cent.
- All employee benefit. The trust has to be operated for the benefit of all employees on the same terms. You can vary by salary, length of service and hours worked, and by very little else.
- Limited participation. Broadly, it stops a small group of former owners and connected people capturing the benefit.
Since 30 October 2024 there are also requirements that the trustees are UK resident, that former owners and connected people cannot control the trust after the sale, that fewer than half the trustees are former owners or connected to them, and that trustees take reasonable steps to ensure the price paid does not exceed market value.
That last point is why the valuation has to be independent and defensible. The trustee has a duty to the employees, not to you, and paying over the odds is a breach of it. If you want a sense of the range before any of this starts, the valuation calculator will give you one in a few minutes.
Who it suits, and who it does not
It tends to work when
- The business generates consistent, predictable cash, because that cash is what pays you
- There is a management team capable of running it without you
- You are willing to wait several years for the bulk of your money
- What happens to your staff genuinely matters to you
- Profits are strong enough to fund the payments and still invest in the business
It tends not to work when
- You need the cash now, for another venture, a divorce or retirement that will not wait
- Profits are lumpy or the sector is cyclical
- There is no management team and you are the business
- A trade buyer would pay a strategic premium you would be walking away from
- The business is carrying debt that already absorbs most of its spare cash
What your life looks like the day after
Usually less different than owners expect, at first. Many sellers stay on as a director or in a defined role for a period, partly because the business needs them and partly because the trust is paying them out of profits they can help generate.
What does change is control. You cannot hold the majority of trustee positions, you cannot control the trust through the trust deed, and decisions you used to take alone now go through a governance structure. For some owners that is a relief. For others it is the hardest part of the whole thing, and it is worth being honest with yourself about which you are before you start.
How we handle them
An EOT is three jobs at once. There is the corporate side, structuring the deal and getting the funding to work. There is the legal side, the trust deed, the governance and the share purchase agreement. And there is the tax side, the clearances and the personal position of each selling shareholder.
Owners often end up coordinating those three themselves, which is how things get missed between them.
We work alongside a legal practice and an accountancy firm on these, so the whole thing runs in one place. We handle the deal and the valuation, they handle the trust and the tax, and you have one conversation rather than three. If it turns out an EOT is not the right route, we will tell you that too, and a trade sale process is the obvious comparison to run it against.
Where to start
With the number. An EOT has to be funded out of future profits, so the first question is not whether you like the idea, it is whether the business can actually afford to buy itself at a price you would accept. That is an arithmetic question and it can be answered early.
A free valuation is the sensible first step, and it costs nothing.
Answered.
Do employees have to pay anything?
No. The trust buys the shares on behalf of all employees and it is funded by the company’s future profits, sometimes with third party debt for an initial payment. Employees do not contribute and do not hold shares individually.
How long does it take to get paid?
Typically five to seven years for the deferred element, though there is often an initial payment on completion. The pace depends entirely on the cash the business generates, so a strong trading period shortens it and a weak one lengthens it.
Can I stay involved after the sale?
Yes, and many sellers do, often as a director or in a defined role. What you cannot do is retain control. Since 30 October 2024 former owners and connected people are prevented from controlling the trust, and fewer than half the trustees can be former owners or connected to them.
Is an EOT still worth it after the tax changes?
It depends what you wanted from it. For disposals on or after 26 November 2025 the relief is 50 per cent rather than the full exemption that applied before, giving an effective rate of around 12 per cent for higher and additional rate taxpayers. If the outcome for your employees is the point, the case is largely unchanged. If the tax relief was the point, it is materially weaker than older guidance suggests.
Can the business afford to buy itself?
An EOT is funded from future profits, so that is the first question rather than the last. A free valuation answers it, costs nothing and commits you to nothing.
Get a free valuation