Employee Ownership Trusts: Why they could be a strategic exit option for business owners

If you’re a business owner thinking about your long-term plans, you might have already considered the ways you could exit your company. 

Employee Ownership Trusts (EOTs) have become a common way to transfer ownership of your business to your valued employees. 

However, if you’ve been following the news lately, you might have seen that the 2025 Autumn Budget introduced significant changes to EOTs.

While these shifts could affect your tax planning efforts, there are still compelling reasons why an EOT could be an attractive exit for you. 

With that in mind, continue reading to discover how exactly the Budget changed EOTs and why they could still be beneficial.

Employee Ownership Trusts enable you to transfer your company to employees gradually

Simply put, an EOT is a legal structure that allows you to transfer the ownership of your company to your employees. 

The EOT essentially acts as a trustee, holding a controlling stake on behalf of the workforce. Then, employees typically benefit through profit-sharing arrangements or other incentives. 

The business usually continues to operate under an indirect “collective ownership” model.

As a business owner, an EOT could allow you to step back from day-to-day management while ensuring your company’s values and direction remain the same. 

It’s worth noting that the chancellor, Rachel Reeves, announced a significant change to EOTs in her 2025 Autumn Budget.

Previously, selling your business to an EOT could qualify for 100% Capital Gains Tax (CGT) relief. 

From 26 November 2025, however, this relief was reduced to 50%. This could increase the potential tax liability for your firm’s shareholders. 

Even post-Budget, Employee Ownership Trusts still have some attractive benefits

Despite this change, EOTs could still offer benefits that make them appealing if you’re considering exiting your business. Read on to discover four of these.

1. They can preserve your company’s legacy

If you’ve spent years building your business, an EOT may allow you to protect its values and preserve its legacy. 

For instance, if you transfer ownership to employees rather than an external buyer, you could ensure the company continues in the ways you intended. 

2. EOTs may provide a faster exit than other alternatives

Selling to an EOT can often be quicker than the process of finding an external buyer. 

Since the trust effectively acts as the “purchaser”, you don’t need to negotiate with multiple buyers or go through lengthy sales processes. 

Yet, it’s vital to remember that the purchase price may be paid in instalments over time, rather than as a single lump sum, typically from the business’s future profits.

3. You could retain some control if you wish to stay involved

You can structure EOTs to allow you to retain up to 49% of shares if you wish to remain involved in the business. 

This could help you maintain influence over decisions or continue in some capacity, all while gradually transferring ownership to employees.

4. Transfers are often exempt from Inheritance Tax

Another potential benefit of EOTs is that transfers made under them could be exempt from Inheritance Tax (IHT). 

If you’re thinking about your estate plan, an EOT could reduce your tax liability for your loved ones when you eventually pass away. 

There are alternative business exit strategies worth considering

While EOTs do offer unique advantages, they aren’t the only option if you’re considering exiting your business. 

Sell to an external buyer

This straightforward route could help you achieve a higher sale price, especially if your business is performing well. 

However, preparing a business in this way can take time and effort, and you may have to pay CGT on the profits from the sale. 

Pass the business on to a loved one

This more personal option can help you preserve your company’s legacy by keeping it in the family. You may even be able to defer CGT or reduce a potential IHT bill.

That said, you would need to consider whether your successor has the right experience and whether you can trust them to manage the transition without disrupting the business.

Sell to your management team

You could always sell your business to your leadership team through a management buyout. 

Since your team will already know the business, there may be less disruption to employees and clients. 

Still, the sale price might be lower than with an external buyer, and you may need to remain involved for some time to support the new owners. 

Ultimately, each exit strategy comes with trade-offs, and understanding how they will affect your long-term plans could help you decide which route best aligns with your goals.

Please get in touch

We could help you determine which exit strategy would best suit your unique circumstances. Please contact us today to find out more about how we can support you and your business.

Please note:

This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning.