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What has changed
The Autumn Budget 2024 retained 100% capital gains tax (CGT) relief on qualifying EOT disposals, even as CGT rates on third-party exits increased from April 2025. However, EOT rules were tightened, making valuations more robust and extending the disqualification period from 1 to 4 years (e.g. if the EOT fails to qualify within four tax years following the year of disposal then the CGT relief would be withdrawn, and the vendor required to pay CGT at the prevailing rate).
The Autumn Budget 2025 then reduced CGT relief on qualifying EOT disposals from 100% to 50%, with immediate effect. HM Treasury’s costings anticipate substantial additional tax yield from the change, underscoring the fiscal intent of this EOT update. Other reliefs such as Business Asset Disposal Relief (BADR) and Investors’ Relief cannot be used in conjunction to reduce the chargeable 50%.
Despite the reduction, EOTs remain a more tax-efficient disposal mechanism. From April 2026, the BADR rate increases from 14% to 18%, further widening the gap for non-EOT disposals.
Practical implications for vendors and companies
For qualifying Employee Ownership Trust transactions completing on or after 26 November 2025, half the gain is eligible for 0% CGT and half is subject to CGT at prevailing rates. There is no stacking of BADR/Investors’ Relief on the taxable portion. While this represents an increase versus the pre-2025 Autumn Budget position, it still preserves a significant incentive relative to third-party disposals at headline rates.
Importantly, the £3,600 income tax-free bonus regime for employees in EOT-owned companies continues, supporting employee engagement and retention.
Looking ahead
The direction of travel is clear: the government intends to retain EOTs while rebalancing the cost of the CGT relief, signalling that, although zero‑tax exits are no longer available via EOTs, employee ownership will continue to be supported. For business owners, weighing succession tax is always a key consideration and EOTs continue to offer a more tax efficient option. Disposals to an EOT however will not be right for all vendors and companies, and consideration must be given to qualifying requirements and practical implications of such an exit route.
If you have any questions about the above or would like to discuss EOTs more generally, please contact our expert Corporate team by email or call +44(0)3333 231580
