EOTs Still Offer Substantial Tax Savings After November 2025 Budget Changes
Employee Ownership Trust (EOT) CGT Changes – November 2025
The Chancellor has announced changes to EOT capital gains tax relief, effective 26 November 2025. The existing 0% CGT rate has been replaced with 50% relief, meaning qualifying EOT sales now attract an effective 12% CGT rate.
While this represents a change, EOTs remain significantly more tax-efficient than traditional sale routes and continue to offer compelling advantages for business owners considering succession planning.
CGT Rate Evolution Timeline
| Period | Traditional Sale | EOT Sale |
|---|---|---|
| Prior to November 2024 | 10% on first £1m (BADR), 20% above | 0% |
| April 2025 – November 2025 | 14% on first £1m (BADR), 24% above | 0% |
| From 26 November 2025 | 14% on first £1m (BADR), 24% above | 12% on all gains |
| From April 2026 onwards | 18% on first £1m (BADR), 24% above | 12% on all gains |
Net Proceeds Comparison (April 2026 onwards)
| Business Value | Traditional Sale (18%/24%) | EOT Sale (12%) | Your Saving |
|---|---|---|---|
| £500,000 | £410,000 | £440,000 | +£30,000 |
| £1,000,000 | £820,000 | £880,000 | +£60,000 |
| £2,000,000 | £1,520,000 | £1,760,000 | +£240,000 |
| £5,000,000 | £3,820,000 | £4,400,000 | +£580,000 |
Assumes full use of £1m BADR lifetime allowance. Traditional sale applies BADR rate on first £1m, then standard CGT rate above.
Why the 12% EOT Rate Still Wins
- Flat 12% rate applies to ALL gains (vs. BADR capped at £1m lifetime limit, then 24% above)
- Simple calculation with no complex BADR tracking
- Rate certainty while traditional CGT continues rising
Strategic Benefits Beyond Tax
- Enhanced business performance through employee ownership and engagement
- Tax-free employee bonuses up to £3,600 annually
- Preserve business independence, culture, and legacy
- Continue as director with market-rate remuneration
- Flexible payment terms from future profits (no immediate buyer capital required)
- Employee wealth creation increases loyalty and reduces turnover
- Simplified internal sale process with lower transaction costs
Example: £2 Million Business Sale (from April 2026)
| Factor | Traditional Sale | EOT Sale |
|---|---|---|
| CGT Calculation | £1m @ 18% + £1m @ 24% = £420k tax | £2m @ 12% = £240k tax |
| Net Proceeds | £1,580,000 | £1,760,000 |
| Tax Saving | – | +£180,000 |
| Ongoing Involvement | Typically exit completely | Continue as director with salary |
| Business Culture | May change under new owner | Preserved and protected |
| Employee Benefits | Uncertain | £3,600 tax-free bonuses annually |
| Payment Structure | Lengthy sale process, high fees | Structured from future profits |
Should You Act Now?
CGT rates have risen consistently: 10%/20% → 14%/24% → 18%/24% (April 2026). EOT relief moved from 0% to 12%. While future policy is uncertain, the trend suggests acting sooner rather than later to lock in the current 12% rate.
Key EOT Requirements
- Must be a trading company (or holding company of trading group)
- EOT must acquire controlling interest (>50% of shares)
- All employees entitled to benefit on equal terms (can be weighted by salary/service/hours)
- Trustees must be UK resident
- After sale, <40% of employees can be participators holding 5%+ shares
- Consideration must not exceed market value
- Former owners cannot retain control via the EOT structure
Recent Technical Changes
The November 2025 Budget introduced additional requirements: CGT relief withdrawal period extended from 1 to 4 years, stricter trustee independence rules, and enhanced HMRC reporting requirements. These don’t fundamentally change EOT attractiveness but ensure the regime operates as intended.
Bonus: Enterprise Management Incentives (EMI) Improvements
From April 2026, EMI schemes become more accessible:
- Employee limit: 250 → 500 FTE employees
- Gross assets test: £30m → £120m
- Total EMI option value: £3m → £6m
- Maximum holding period: 10 → 15 years
- Notification requirements removed from April 2027
Conclusion
Despite the change from 0% to 12% CGT, EOTs remain an exceptionally attractive succession planning tool. The 12% flat rate still significantly outperforms traditional sales (18%/24% from April 2026), delivering substantial savings:
- £2m business: £180,000 saving
- £5m business: £580,000 saving
Combined with strategic benefits including legacy preservation, continued involvement, employee engagement, and tax-free bonuses, EOTs continue to offer compelling value for business owners planning succession.
Ready to Explore an EOT?
We offer no-obligation consultations to discuss your specific circumstances, run the numbers for your situation, and help you understand all available options.