Selling to an employee ownership trust used to mean a completely tax-free exit. It no longer does. From 26 November 2025, capital gains relief on a qualifying disposal to an EOT is restricted to 50% of the gain. That sits on top of a separate package of tightening measures from October 2024 — UK resident trustees, a trustee independence test, a market value requirement, and a clawback period running to the end of the fourth tax year after disposal.
What an EOT is for
An EOT is a trust holding a controlling interest in a company for the benefit of all its employees. For an owner without an obvious trade buyer or successor, it offers an exit at market value, continuity for the workforce, and — historically — a full exemption from capital gains tax. It remains a genuine route; it is simply no longer the tax-free one.
The 50% restriction
For disposals from 26 November 2025, half the gain is treated as the disposer's chargeable gain for CGT purposes. The other half does not form part of the disposer's gain: it is held over and deducted from the trustees' acquisition cost, so it comes into charge on any subsequent disposal or deemed disposal of the shares by the trustees.
So the tax is halved and deferred rather than forgiven, and the deferred half attaches to the trustees. HMRC's helpsheet puts it simply: half of the gain on disposal is exempt from CGT. Relief is available during the tax year in which the trustees acquire the controlling shareholding.
There is a second consequence that is easy to miss and materially changes the comparison: business asset disposal relief and investors' relief are not available on a disposal where section 236H relief has been claimed. So the choice is not "half the gain exempt" against "a fully taxable trade sale" — it is half the gain exempt with no BADR, against a trade sale where BADR could apply to the first £1 million at 18%. Our guide to the downsides of an EOT works through that arithmetic.
Get the dates right when reading about this. The 50% cut is now enacted in section 35 of Finance Act 2026, effective for disposals made on or after 26 November 2025. It is not a Finance Act 2025 change — that Act carried a different package, described below, effective for disposals on or after 30 October 2024. Commentary that attributes the 50% cut to Finance Act 2025 has merged two separate reforms.
The qualifying conditions
The conditions in section 236H TCGA 1992 have to be met at the time of disposal and, for several of them, for the remainder of that tax year:
- Trading requirement — the company must be a trading company that is not a member of a group, or the principal company of a trading group;
- All-employee benefit requirement — the trusts must not permit settled property to be applied otherwise than for the benefit of all eligible employees on the same terms, and must bar new trusts, transfers to other settlements other than authorised ones, loans to beneficiaries, and amendments breaching those conditions;
- Controlling interest requirement — the trustees must hold more than 50% of the ordinary share capital with voting powers giving a majority, be entitled to more than 50% of profits available for distribution and more than 50% of assets on a winding up, and there must be no agreement under which those could cease to be satisfied without their consent;
- Limited participation requirement — the participator fraction must not have exceeded two-fifths in the 12 months before disposal, nor exceed it from disposal to the end of the tax year.
The participator fraction is a ratio: persons who are both participators in the company and employees or office-holders, plus employees connected with them, over the number of employees. A participator only counts where they hold 5% or more of the share capital or of a class of shares and would receive 5% or more of assets on a winding up. A breach lasting no more than six months and arising from events outside the trustees' reasonable control is disregarded.
The October 2024 package
Four changes apply to disposals on or after 30 October 2024, and they reshape how these deals are structured:
- UK resident trustees. The trustees must be resident in the UK at the time of disposal and for the remainder of that tax year. Offshore trustee structures no longer work;
- Trustee independence. Fewer than 50% of the trustees may be excluded participators, and excluded participators must not have control of the settlement. Control here means the power to dispose of, advance or invest settlement property, vary or terminate the settlement, add or remove beneficiaries, appoint or remove trustees, or direct the exercise of those powers. Read it precisely: this is a "fewer than half plus no control" test, not a blanket ban on the former owner sitting on the trustee board;
- Market value. Trustees must take all reasonable steps to secure that the consideration does not exceed the market value of the ordinary share capital at the time of disposal — in practice, obtaining and reviewing an independent professional valuation. Where consideration is deferred, interest must not exceed a reasonable commercial rate;
- Extended clawback — two periods, two different payers. Under section 236O a disqualifying event in any of the first four tax years following the tax year of disposal revokes the seller's claim, and the seller bears the tax. Under section 236P an event after the end of that fourth year triggers a deemed disposal and reacquisition at market value by the trustees, who bear it along with the held-over 50%. Before 30 October 2024 the vendor period was only the single tax year following disposal, so the seller's exposure has quadrupled.
The employee bonus
An EOT-controlled company can pay qualifying bonuses free of income tax up to £3,600 per employee per tax year, under Chapter 10A of Part 4 ITEPA 2003. Where employers are in the same group the £3,600 is capped across the group; unconnected employers each get their own.
One thing to be careful about in the marketing of this: the exemption is from income tax. Do not describe it as free of National Insurance — the statutory exemption addresses income tax, and payroll should be run accordingly. From 30 October 2024 the participation requirement for the bonus can exclude directors.
Does it still work?
For the right business, yes — but the case has to be made on more than tax. At 50% relief, the seller pays capital gains tax on half the gain, and with the main rate at 24% that is a real cost against a trade sale where business asset disposal relief might apply to the first £1 million at 18%.
What an EOT still offers is a buyer where there may not be one, a price at market value supported by a valuation, continuity for the workforce, and a structure that suits owners who care what happens to the business afterwards. Those were always the better reasons. Our guide to business exit planning sets the options side by side.
Acumon advises owners and trustees on employee ownership through employee ownership trusts, valuations and selling your business work, with capital gains tax advice alongside. If an EOT sale was modelled before November 2025, the numbers in that model are wrong and worth rebuilding before anyone commits to them.