In the past 12 years, Employee Ownership Trusts (EOTs) have gone from being a relatively niche succession planning tool to becoming one of the most talked-about business exit strategies in the UK.

However, in recent years, EOTs have come under increased scrutiny from HMRC and the Government, which resulted in new rules being announced in the 2024 and 2025 Autumn Budgets for them.

Despite this, Simon Armitage, who is a director at chartered accounting, tax and business advisory firm, Saffery, says they are still a strong succession planning option for business owners.

Simon explained: “Increasing numbers of business owners are considering whether selling to their employees could provide the right balance between financial reward, business continuity and protecting their legacy.

“It is easy to see why EOTs are so popular. Introduced in 2014, the rules were designed to encourage employee ownership by allowing business owners to transfer a controlling interest in their company to a trust set up for the benefit of its employees. In return, generous tax advantages were made available, most notably the Capital Gains Tax (CGT) treatment which effectively exempted the gain arising on a qualifying disposal.

“For many years, that meant shareholders selling to a qualifying EOT could potentially pay no CGT on the sale of their shares. Compared with a traditional sale or management buy-out, that represented a very attractive proposition. Employees can also benefit through tax-free bonuses of up to £3,600 each year, helping to create a stronger sense of engagement and shared success within the business.

“According to the EOA (Employee Ownership Association), there are now more than 2,800 employee-owned businesses in the UK. In Yorkshire, where many businesses are owner-managed, family-run or deeply connected to their local communities, an EOT is often an appealing option because it can preserve the culture and independence of a company.

“Rather than selling externally and risking major changes to staff, management or operations, owners can put their faith in the employees who helped build the business in the first place. In many cases, directors can also remain involved in the company after the sale, providing continuity and stability.”

Simon continued: “However, the popularity of EOTs has inevitably led to increased scrutiny from HMRC and the Government. Concerns emerged that some structures were being used as aggressive tax planning vehicles meaning significant changes to the rules were announced in both the 2024 and 2025 Autumn Budgets.

“Since then, for disposals made on or after 26 November 2025, only 50% of the gain on a qualifying sale to an EOT is exempted from CGT, whereas previously 100% relief could apply. The remaining 50% is taxable and does not qualify for either Business Asset Disposal Relief or Investors’ Relief. Based on current CGT rates, this creates an effective CGT rate of 12% on qualifying disposals.

“Additional anti-avoidance measures include tighter rules around valuation, governance and ensuring that exiting shareholders cannot continue to control the company after the sale. HMRC has also changed its approach to how certain company contributions to EOTs are taxed, increasing the importance of careful structuring and documentation.”

Finally, Simon added: “Despite these changes, I still believe EOTs remain an excellent option for many business owners and their employees. The employee ownership model often brings significant commercial and cultural benefits to an organisation and, while the tax advantages may no longer be quite as generous as they once were, they are still highly competitive when compared with other exit routes.

“Ultimately, succession planning should never be driven by tax alone and business owners deciding whether a disposal to an EOT is right for them must seek specialist advice. Every business is different, and careful planning is essential to ensure the structure works both commercially and tax efficiently in the long term.”