Exiting to an Employee Ownership Trust

Employees do not usually buy or hold shares personally. The trust owns the shares, and employees benefit indirectly through the long-term success of the company and, where the company chooses, through qualifying profit-sharing bonuses.

1. 1

   Feasibility

   Owners and advisers assess whether the business generates enough sustainable profit to fund the price, and whether the leadership team can run it without the selling owners.

2. 2

   Independent valuation

   The shares are valued; the trust must not pay more than market value.

3. 3

   Trust established

   A trust is created with a corporate trustee and a trustee board.

4. 4

   Sale agreement

   The trust acquires a controlling interest (more than 50%), with part paid at completion if cash is available and the balance deferred.

5. 5

   Clearances and tax claim

   Advisers typically seek HMRC clearances where appropriate, and the seller claims the relevant relief in their tax return.

6. 6

   Deferred payments

   The company makes contributions to the trust from future profits, which the trust uses to pay the sellers over time.

A corporate trustee is normally established, with a board that may include an independent trustee, employee representatives and, within the statutory limits, former owners. Since changes taking effect from 30 October 2024, former owners and persons connected with them must not control the trustee board, and trustees must be UK resident.

Good governance separates the trustee's role (overseeing the company for employees' long-term benefit) from the management team's role of running the business day to day.

The trust usually has no money of its own, so most of the price is funded by contributions from the company out of future profits, sometimes supplemented by company cash at completion or third-party debt. Sellers therefore commonly receive their proceeds over a number of years.

The Capital Gains Tax treatment depends on the date of disposal. For disposals before 26 November 2025, a qualifying disposal of shares to an EOT was treated as giving rise to neither a gain nor a loss. This amounted to full relief. For disposals on or after 26 November 2025, the Finance Act 2026 restricts the relief: 50% of the qualifying gain is exempt and the remainder is charged to Capital Gains Tax under the normal rules. Business Asset Disposal Relief and Investors' Relief cannot be claimed on a disposal where EOT relief is claimed.

The qualifying conditions are strict. Broadly, the company must be a trading company or the principal company of a trading group; the trust must acquire and keep a controlling interest; the trust must benefit all eligible employees on the same terms; and the 'limited participation' requirement restricts the proportion of continuing employees and officers who are former significant shareholders.

Changes announced at the Autumn Budget 2024 and legislated in the Finance Act 2025 added further requirements, including that trustees take reasonable steps to ensure the price does not exceed market value, the trust be UK resident, and former owners not control the trustee. Qualifying EOT-owned companies may also pay employees income-tax-free bonuses up to an annual limit, subject to conditions.

• Consistent, sustainable profitability to fund deferred payments.
• A capable leadership team who will run the business after the owners step back.
• Owners who value independence, legacy and employee benefit, and accept a phased receipt of proceeds.
• A trading company (investment businesses do not qualify).

See also our guides to management buyouts and trade sales.

1. Can the business fund the price from profits within a timescale I am comfortable with?
2. Who will lead the business, and are they ready?
3. What happens to deferred payments if trading deteriorates?
4. Who will sit on the trustee board, and is it properly independent?
5. How would an EOT outcome compare with a trade sale on net, risk-adjusted proceeds?