Employee ownership trust tax, as it stands now

The tax treatment is the reason many owners look at an EOT in the first place. It is also the part where most published guidance is now wrong, because it describes a regime that ended in November 2025.

Capital gains tax for the seller

Disposals on or after 26 November 2025

Fifty per cent of the gain is relieved. The other fifty per cent is chargeable to capital gains tax.

Neither Business Asset Disposal Relief nor Investors’ Relief can be claimed on the chargeable half. For a higher or additional rate taxpayer facing a 24 per cent rate, that produces an effective rate of around 12 per cent across the whole gain.

The relieved half is held over and deducted from the trustees’ base cost, so it comes back into charge if the trust sells the company later.

Disposals before 26 November 2025

A qualifying disposal was fully exempt from capital gains tax. This is the regime almost every article still describes, so check the date on anything you read.

How it compares

So the EOT advantage still exists. It is a few percentage points rather than the whole bill, and it applies without the lifetime limit that caps BADR.

Effective capital gains tax, compared

Higher and additional rate taxpayer. Each figure carries the date it applied from.

Paying the tax when the money arrives later

A real problem created by the 2025 change. You now have a capital gains tax liability on a disposal where most of the consideration is deferred over five to seven years.

Where consideration is payable over more than eighteen months, it can be possible to apply to pay the tax by instalments under section 280 of the Taxation of Chargeable Gains Act 1992. In practice the application has to be made in writing, can take time to process, and does not come with an advance guarantee. It is worth raising with your accountant early rather than discovering it after completion.

The four year clawback

From 30 October 2024, the period during which your relief can be withdrawn runs to the end of the fourth tax year following the tax year of the disposal. Before that date it ended with the tax year following the year of disposal.

Sell early in a tax year and the exposure can run close to five years. If a disqualifying event occurs in that window, the relief is withdrawn and the tax becomes payable, potentially at a point when you are still owed a substantial part of your price.

The events that trigger it largely sit with the trustees, the company and its management. You will have given up control by then, which is what makes this the most significant risk in the regime rather than the rate change.

How long your relief stays at risk

The change that took effect on 30 October 2024, shown against what it replaced.

Tax for the employees

A company owned by a qualifying EOT can pay employees a bonus of up to £3,600 per employee per tax year free of income tax. National Insurance is still due, for both employee and employer.

The bonus has to be paid to all employees on similar terms, with variation permitted only by salary, length of service and hours worked. It is not a mechanism for rewarding a chosen few.

Tax for the company

Since 30 October 2024 there is a statutory income tax relief for contributions the company makes to the trust to fund the purchase price and certain associated acquisition costs. That removed a long standing area of uncertainty about how those contributions were treated.

The conditions that must keep being met

• Trading company or holding company of a trading group
• The trust holds and keeps a controlling interest, more than 50 per cent
• The trust benefits all employees on the same terms
• The limited participation requirement is satisfied
• Trustees are UK resident, from 30 October 2024
• Former owners and connected people do not control the trust, and fewer than half the trustees are former owners or connected to them, from 30 October 2024
• Trustees take reasonable steps to ensure the price does not exceed market value, from 30 October 2024

That last requirement is why the valuation has to be independent and defensible rather than whatever the seller hoped for.

What this means in practice

If you were drawn to an EOT because of a zero tax bill, that reason has gone. Around 12 per cent against 18 or 24 per cent is still worth having, but it is no longer the whole argument, and the four year clawback is real exposure attached to it.

If you were drawn to an EOT because of what happens to your people, almost nothing has changed. The tax is a bonus rather than the point.

The honest test is which of those two you are. The EOT overview sets out the wider picture, and a trade sale is the comparison worth running it against.

How we handle the tax side

We do not give tax advice. We work alongside an accountancy firm and a legal practice on these transactions so the clearances, the trust and the deal are handled together. You get one process rather than three sets of advisers discovering each other halfway through.