Employee Ownership Trusts Capital Gains Tax relief reduction
Employee Ownership Trusts (EOT) have become increasingly popular as business owners look to transfer a controlling interest in their company to a trust established for the benefit of all employees.
This structure offers a tax-efficient succession plan while fostering a culture of shared ownership and engagement.
Recent changes have been brought in which see the relief from CGT on qualifying disposals to EOTs reduced from 100% to 50% for sellers from 26 November this year.
Tom Haywood, Senior Associate in the company commercial team at Wake Smith Solicitors looks at the new measures.
This article covers:
- What does the change mean?
- Why the change?
- Your next move?
What does the change mean?
It means 50% of the gain on disposal to the trustees of an EOT will be treated as the seller’s chargeable gain for CGT purposes, and payable by them in the usual way. This is a significant change from the previous position allowing a seller to hold over all of their CGT until a future onward sale of the Company – a rare circumstance.
Why the change?
This change aims to support and incentivise employee ownership while ensuring that business owners pay their fair share.
The change is designed to promote fairness by ensuring those who dispose of valuable shareholdings to the trustees of an EOT pay some tax on their gains, whilst retaining a significant incentive to transition companies to employee ownership by charging a lower effective rate of tax on such disposals as compared to other disposal routes.
Employee ownership gives employees a greater stake in the business in which they work, improving working conditions and driving productivity and growth in the economy.
The policy is expected to bring £6.8 billion of chargeable gains into scope for CGT in the first full year (2026/27).
This measure does not bring new taxpayers into the tax system and does not significantly change processes for existing taxpayers.
Your next move?
Transitioning to an EOT structure can be a strategic move for business owners seeking a tax-efficient succession plan that rewards employees and secures the company's future. Despite the changes, a sale to an EOT can still be a very attractive option for business owners. If you are considering an EOT for your business, the Wake Smith Company Commercial team has vast experience in this area.
For further advice contact the Corporate team at Wake Smith Solicitors on 0114 266 6660.
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Published 15/12/2025
About the author
Associate Solicitor in Company Commercial
