Autumn Budget 2025: The government has announced plans to reduce the capital gains tax (CGT) relief on qualifying disposals to employee ownership trusts (EOTs) from 100% to 50% from 26 November 2026.
In her Budget statement, Chancellor Rachel Reeves announced that the scheme is on course to cost £2 billion, 20 times beyond the original costings when it was announced in 2013.
Current CGT relief available on qualifying disposals to EOTs allows business owners to sell their shares without paying any CGT, with around half of the relief going to the largest 10% of disposals of shares.
The Budget statement revealed that the cost of the relief has increased significantly in recent years; the original costing from 2013 suggested the entire EOT tax regime would cost less than £100 million in 2018-19, but the cost of the CGT relief alone reached £600 million in 2021-22.
The government has stated that it will retain a strong incentive for employee ownership, while ensuring that business owners pay their fair share of tax, by reducing the relief available.
Christian Wilson, partner at law firm Spencer West, said: “Halving the capital gains tax relief on sales to EOTs will likely cool momentum in the short term. It raises founder tax costs, squeezes headroom for deferred consideration and is likely to bring seller price expectations closer to independent valuations.
“That said, EOTs remain a robust succession route for good businesses because they preserve culture, jobs and independence; it’s not just about the tax. The added advantage of creating your own buyer and softer due diligence remain unaffected.”
Mark Turner, partner at Lubbock Fine, added: “Changing the tax rules on EOTs make them a far less attractive route for founders who want to step back while preserving the character of the business and rewarding long-standing employees.
“Obviously, the Chancellor is trying to raise extra tax but eroding the attractions of EOTs doesn’t sound like the right way to do that.
“Selling a business to employees means both the purchasers and the seller can avoid the lengthy due-diligence processes typically involved in other exit routes, such as private equity, but the incentives to use them have now been severely diminished.”
