Employee ownership trusts are sold on the tax relief, and the relief has halved. Since 26 November 2025 only 50% of the gain is exempt — and claiming that relief now blocks business asset disposal relief and investors' relief on the same disposal. Add a market-value ceiling on price, a four-year clawback and a trustee independence test, and the honest case for an EOT rests on something other than tax.
The relief is now 50%, and it is enacted
Section 35 of Finance Act 2026 amended TCGA 1992 section 236H so that only 50% of the gain is a chargeable gain, for disposals made on or after 26 November 2025. The other half is held over and deducted from the trustees' acquisition cost.
The practical effect for a seller: capital gains tax at the main rate on half the proceeds. On a £4m gain that is roughly £480,000 at 24%, where two years ago it would have been nil.
The disadvantage nobody mentions: BADR and investors' relief are blocked
This is the one most likely to be missed, and it is new. Under the amended section 236H, business asset disposal relief and investors' relief are not available on disposals where section 236H relief has been claimed.
So the comparison is not "50% exempt versus a fully taxable trade sale". It is 50% exempt with no BADR, against a trade sale where BADR could apply to the first £1 million of gain at 18%. For sellers with gains close to the lifetime limit, the arithmetic is much tighter than the headline suggests, and for some it now favours the trade sale outright.
The held-over half comes back
The exempt 50% is not forgiven. It is deducted from the trustees' acquisition cost, so it comes into charge on any subsequent disposal — or deemed disposal — of the shares by the trustees.
That matters because a late disqualifying event triggers exactly such a deemed disposal. The held-over gain then crystallises in the trustees' hands, funded from trust assets that ultimately belong to the employees.
Two clawback periods, two different payers
The four-year clawback is usually described as a single risk. It is two, and the distinction decides who writes the cheque.
Section 236O — the vendor period. Where a disqualifying event occurs in any of the first four tax years following the tax year of disposal, no claim may be made on or after the day of the event, and any claim already made is revoked, with gains and losses recalculated as if the claim had never been made. The seller bears this.
Section 236P — the trustee period. Where the event occurs after the end of the fourth tax year following the acquisition, the trustees are treated as having disposed of and immediately reacquired the shares at market value. The trustees bear this, and with it the held-over 50%.
The four-year extension came in with Finance Act 2025 for disposals on or after 30 October 2024. Before that, the vendor period was only the single tax year following disposal — so the exposure window has quadrupled.
The disqualifying events are: losing the trustee residence requirement; the company ceasing to meet the trading requirement; losing the all-employee benefit requirement; losing the trustee independence requirement; losing the controlling interest requirement; the participator fraction exceeding two-fifths; or the trustees acting contrary to the trust requirements. Most of these are outside the seller's control once they have gone — which is the uncomfortable part of a four-year vendor exposure.
No premium exit
Since 30 October 2024 the trustees must take all reasonable steps to secure that the consideration does not exceed market value at the time of disposal — the steps a reasonable prudent person would take to verify it, which in practice means an independent professional valuation the trustees have actually reviewed. Where consideration is deferred, the interest rate must not exceed a reasonable commercial rate.
There is a second control to the same effect: the trustees' income tax relief on company distributions is conditioned on the shares having been acquired for no more than market value.
So an EOT cannot deliver the strategic premium a competitor might pay. It is a market-value exit by design.
How it gets funded
The trust has no money of its own. Company contributions to the trustees are distributions under section 1000 CTA 2010 — paid out of company assets in respect of shares, and treated as distributions like any other.
Section 401ZA ITTOIA 2005 gives targeted relief for distributions made on or after 30 October 2024, letting trustees deduct qualifying acquisition costs: the acquisition itself, repayment of sums borrowed to fund it, interest on deferred consideration up to a reasonable commercial rate, valuation costs, and stamp duty or SDRT. The deduction cannot take the distribution below nil, and the claim must be made within four years of the end of the relevant tax year.
Note what the legislation contemplates: borrowing to fund the acquisition is expressly a qualifying cost. So external funding is possible. In practice most EOT deals are funded substantially from future company profits, and the commercial consequences of that — a seller paid over several years, carrying continued exposure to the trading performance of a business they no longer control, usually as an unsecured creditor — are the real disadvantage rather than a tax one. That is commentary rather than something the legislation says, but it is where deals cause regret.
Losing control of the trustee board
The trustee independence requirement in section 236LA, for disposals on or after 30 October 2024, requires that fewer than 50% of the trustees are excluded participators and that excluded participators do not have control of the settlement. Control covers powers over disposal, advancement, lending, investment, variation, termination, changing beneficiaries and appointing trustees.
Read precisely, this is not a ban on the former owner being a trustee — and excluded participators are not treated as having control where they can only exercise powers with the consent of others who are not excluded participators. But a seller who expects to keep effective control of the trust has misunderstood the structure.
Trustees must also be UK resident at the time of disposal and for the remainder of that tax year, which closes off offshore trustee arrangements.
The bonus is smaller than it sounds
An EOT-controlled company can pay qualifying bonuses of up to £3,600 free of income tax. HMRC is explicit that the exemption does not extend to National Insurance, which follows the normal treatment for earnings. So there is employer secondary Class 1 at 15% and employee Class 1 to pay.
The £3,600 is also capped at £3,600 in total across group employers, though unrelated employers each get their own.
When it is still the right answer
None of this makes an EOT a bad structure. It makes it a structure that has to be chosen for the right reasons: a business with no obvious trade buyer, an owner who cares what happens to the workforce, a management team capable of running it, and profits reliable enough to fund the consideration.
What no longer works is choosing it primarily for the tax. Model it against a trade sale with BADR and against a management buyout, on the actual numbers, before committing. Our guide to employee ownership trusts sets out the qualifying conditions in full, and business exit planning the alternatives.
Acumon advises owners and trustees through employee ownership trusts, valuations and capital gains tax work, with selling your business alongside. If an EOT was modelled before November 2025, it was modelled on 100% relief with BADR intact — and both halves of that are now wrong.