Following the November 2025 Budget announcement of the reduction of capital gains tax (CGT) relief for employee ownership trusts (EOTs) from 100% to 50%, many are questioning how this will work in practice and what it means for the future of EOTs.
While these changes initially raised concerns, the practical impact is less significant than first feared, with EOTs remaining an attractive succession option for employers. EOTs will still allow sellers to exit in a tax-efficient manner while preserving organisational culture and values. This is crucial from a HR perspective, because it supports continuity in leadership and organisational ethos while reducing disruption for employees and the need to implement large-scale cultural integration programmes, which are usually required on third-party sales.
The government has reaffirmed its commitment to employee ownership as a key part of the UK’s economic strategy. It stated the reduction of the CGT relief is intended to ensure the scheme remains financially sustainable and aims to balance the government’s support for employee ownership with broader fiscal responsibility.
Employee ownership offers benefits that go far beyond the CGT tax relief offered. These advantages stem from giving employees a genuine stake in the business; this fosters a sense of purpose, involvement and loyalty, which aligns with modern HR practices of creating inclusive and participatory workplaces.
For selling shareholders, EOTs provide a succession route that protects the legacy of the business they have built and protects the employees they care for. Even with the reduction in CGT relief, EOTs remain a practical and strategic choice for employers that prioritise long-term stability, employee welfare, and sustainable growth.
While some details of the CGT relief changes are still being finalised, the Employee Ownership Association is working with HM Revenue and Customs (HMRC) and the Department for Business and Trade to provide clarity on the terms of the changes.
It has been confirmed by HMRC that sellers may apply to pay CGT in instalments; instalment arrangements can be revised should the business not perform as expected, subject to HMRC agreement; and the sellers may apply to recalculate CGT where deferred consideration becomes irrecoverable.
The practical cost implications for the sellers having to pay CGT is, therefore, not as significant as it initially seemed. The sellers would not need to pay any CGT until they make their self-assessment tax return for the relevant tax year in which the gain was made. By this point, the sellers would usually have received the completion payment and some deferred consideration payments too.
If the seller is granted permission to pay the CGT in instalments, it is expected that they will need to pay 50% of any deferred consideration instalment actually received towards paying off their CGT debt, making the payment of the CGT liability more manageable from a cash flow perspective than it may at first have appeared.
It is also worth noting that these changes do not affect transactions that completed before 26 November 2025, but where deferred consideration is still owed.
The reduction in CGT relief is a recalibration, not a retreat. EOTs remain an attractive succession solution, blending tax advantages with cultural continuity and long-term stability for employers and employees.
Laura Gray is a senior associate at Birketts
