Employee ownership trusts (eots) & cgt : how the 2025 budget changes impacted sme exit planning
April 28, 2026
For a number of years now, Employee Ownership Trusts (EOTs) have occupied an interesting space in the exit conversations for SME business owners.
They have been an ‘under the radar’ option for most considering a future business sale or exit, but have recently become more popular for those who are not emotionally drawn to a full trade sale, and who instead value continuity, legacy, or employee stability – as opposed to just price.
The recent Budget did not abolish EOTs, nor did it remove capital gains tax (CGT) relief entirely, but it did materially change the tax relief that had been making EOTs more and more popular in recent years..
Will these recent Budget changes now result in more widespread behavioural change going forward, especially for businesses owners that were considering an EOT as a simpler and hugely tax-efficient exit route ?
SO what is an EOT and Why have they become popular ?
An Employee Ownership Trust is a structure under which a controlling interest in a company is sold to, and then held on behalf of its employees, by trustees.
From the business owner (vendor’s) perspective, the attraction of an EOT (pre Budget) was clear:
- where the qualifying conditions were met, a disposal of shares to an EOT would benefit from 100% capital gains tax (CGT) relief.
- the selling shareholder(s) paid no CGT at all on the disposal.
- when compared with a business sale, the business continued operating broadly as before, often with the same management team and culture intact.
EOTs had started to become a real alternative as an Exit option for business owners of profitable, people driven businesses, where an third party buyer may not be an ideal cultural fit.
Unsurprisingly, given the level of tax relief offered via this route, it was always likely to be on a target list for a Chancellor searching for increased tax take . . .. .
What Has Changed on Capital Gains Tax in 2025/26
For disposals to an Employee Ownership Trust made on or after 26 November 2025, the capital gains tax (CGT) relief has been reduced:
- the tax relief has reduced from 100% of the gain made on the sale to now only 50% of the gain.
- therefore the remaining 50% of the gain becomes chargeable to CGT.
- Business Asset Disposal Relief (BADR or Entrepreneur’s relief) and Investors’ Relief are not available to reduce the remaining 50%
Therefore there remain clear tax benefits for selling to an EOT structure for SME business owners, just NOT the same compelling tax reasons to seriously consider retirement and/or succession via this route as previously.
How Does this impact SME Exit Planning NOW ?
Whereas some SME business owners decided on the EOT Exit route because they removed tax uncertainty from the succession route, then for these businesses other more traditional options have now potentially become more attractive e.g.
- once CGT is payable, the gap between an EOT and a third party business sale narrows, particularly where earn-outs or deferred consideration are considered
- EOTs are typically funded out of future profits rather than through full upfront cash proceeds..
However the option of an EOT as a compelling Exit option for certain SME business owners is NOT dead at all.
For owners who place real value on legacy, employee protection and cultural continuity, an EOT can still make sense, even with a reduced tax benefit.
Similarly, where a business may not attract strong buyer interest for commercial or sector-specific reasons, an EOT may still provide a viable and structured succession route.
What this Budget has actually highlighted is something that has been true for a long time i.e. that when considering business sale or exit options, the best option should make sense commercially and structurally first, with tax only considered afterwards.
At Sakura, we tend to discuss EOTs with our Clients as part of a broader ownership and succession conversation in any case, as tax should NOT be the only reason for choosing a route that will affect the future of the business, the employees, the owner’s personal wealth etc.
So we start by asking:
- How sustainable are the profits that would ultimately fund the purchase?
- How dependent is the business on the current owner?
- What does “success” actually look like for the owner post-exit?
- How does this route compare with more traditional business sales once tax, risk, timing and cash are all considered together?
A Final Thought
There is no doubt that Employee Ownership Trusts will continue to be a very viable option for SME business owners – but within more specific circumstances than before !
So for SME owners who were attracted to EOTs primarily because they were a completely tax free option, they will now likely need to review and reassess other options.
For those who value continuity and are prepared to accept some tax cost in return for the more unique aspects of the EOT Exit route for their business e.g. longer term stability, ongoing involvement etc., this option will still play a key role.
Either way, the wider point remains the same, that a business sale or exit is usually a ‘once in a lifetime’ event. Therefore it probably deserves slightly more planning than leaving it until six months before you want to sell or exit !
Is a business sale or Exit on your radar ?
If you are starting to think about a future sale, succession plan or EOT, our Asset Rich and Exit Ready process helps SME owners review their options early and prepare properly