For a decade, selling a controlling interest to an employee ownership trust delivered a complete exemption from capital gains tax. That ended on Budget day, 26 November 2025, with immediate effect and no warning.
If your succession model was built before that date, it is out of date by a material amount.
What is the new position?
For disposals to EOT trustees on or after 26 November 2025, 50% of the gain is treated as the seller’s chargeable gain. The other 50% is held over, deducted from the trustees’ acquisition cost, and comes into charge on any future disposal by the trustees.
Two consequences follow that are easy to miss:
- Neither Business Asset Disposal Relief nor Investors’ Relief can be claimed on the taxable half where relief under section 236H TCGA 1992 is claimed
- The held-over half is not forgiven. It sits with the trust
What is the effective rate?
For a higher-rate taxpayer, tax on half the gain at the 24% main rate produces an effective rate of about 12%.
Set against the alternatives:
- 12% — sale to an EOT
- 18% — BADR, on the first £1 million of qualifying lifetime gains, from 6 April 2026
- 24% — a standard share disposal with no relief
So the EOT remains the most efficient of the three, and by a wider margin on larger gains, since BADR is capped at £1 million of lifetime gains while the EOT relief is not.
From 6 April 2027 that cap falls to £500,000 (Budget 2026), which strengthens the comparison further for larger sales.
What has gone is the certainty of a nil-tax exit, and with it a good deal of the emotional appeal.
What does this change in practice?
Deal structuring. Most EOT sales are funded from future profits, with consideration paid to the seller over several years. A seller who expected no tax now has a real liability, potentially payable before much of the consideration has arrived. Cash flow modelling is no longer optional.
Pricing. Sellers who priced an EOT sale against a nil-tax outcome may find the net position no longer compares as favourably with a trade sale or a private equity backed management buyout. Re-run the comparison properly rather than assuming the conclusion.
Timing. Transactions in progress on 26 November 2025 were caught. There is no grandfathering.
Is the EOT still worth doing?
Frequently, yes, but for better reasons than the tax rate.
An EOT suits an owner who cares who ends up running the business, wants continuity for staff and customers, and is prepared to be paid over time out of profits rather than in cash on completion. It avoids a sale process, avoids disclosing the business to competitors in diligence, and keeps the culture broadly intact.
Those advantages are unchanged. The tax was always the sweetener rather than the reason, and an EOT chosen primarily for a nil CGT outcome was probably the wrong structure anyway.
What has changed is that the decision now has to stand on its commercial merits. That is a healthier basis for it, if a more expensive one.
One further point worth raising with any board considering the route: the tax-free bonus employees can receive under an EOT has stood at £3,600 since 2014 and was not increased at Budget 2025. The employee-facing benefits of the model have not kept pace with the seller-facing ones, which is worth factoring into how you sell it internally.
Frequently asked questions
What is the CGT relief on a sale to an employee ownership trust now?
50%, for disposals made on or after 26 November 2025. Half the gain is chargeable to capital gains tax at the seller’s applicable rate, and half is held over and deducted from the trustees’ acquisition cost, coming into charge on a future disposal by the trustees.
Can I claim BADR on the taxable half?
No. Where relief under section 236H TCGA 1992 is claimed, neither Business Asset Disposal Relief nor Investors’ Relief is available on the chargeable portion of the gain.
What is the effective tax rate on an EOT sale?
Around 12% for a higher-rate taxpayer, being 24% on half the gain. That compares with 18% under BADR on the first £1 million of qualifying gains from April 2026, and 24% on a disposal with no relief.
Were transactions already in progress protected?
No. The change applied to disposals made on or after 26 November 2025, with immediate effect and no transitional provisions. Deals in train on Budget day were caught.
Is an EOT still a good succession route?
For the right business, yes — it remains the most tax-efficient of the main exit routes, and it preserves continuity, avoids a sale process and keeps the business independent. But it is funded from future profits and paid over time, so it suits an owner who does not need cash on completion. Model it against a trade sale rather than assuming.