The “Free Lunch” is Over: EOT Tax Relief Slashed in Autumn Budget 2025

For the last decade, the Employee Ownership Trust (EOT) has been the “golden ticket” of business exits: a way to sell your company for full market value and pay 0% Capital Gains Tax (CGT).

As of last week, that ticket has just become significantly more expensive.

In the Autumn Budget delivered on 26 November 2025, the Chancellor dropped a bombshell that has sent shockwaves through the corporate finance community: The 100% CGT relief on EOT sales has been cut to 50%.

Here is what business owners need to know about the new landscape and whether an EOT is still a viable exit strategy.

The Headline Change: 100% → 50%

Effective immediately (for disposals on or after 26 November 2025), sellers will no longer enjoy a tax-free exit.

Instead, relief is now restricted to 50% of the gain. 

 The Old Rule (Pre-Nov 2025): You sell your business for £10m. You pay £0 in Capital Gains Tax.

The New Rule: You sell your business for £10m.

£5m is tax-free. 

£5m is taxed at the prevailing CGT rate (currently 24%).

Total Tax Bill: £1.2m (an effective rate of 12%).

Why the change?

The government cited the spiraling cost of the scheme. 

  Originally forecast to cost the Exchequer relatively little, the popularity of EOTs (driven by rising CGT rates elsewhere) has seen the cost bill rise to over £2 billion annually. The Chancellor argued that a 100% relief was “disproportionate” compared to other business owners.

Is It Still Worth It? (The “12% vs 24%” Calculation)

While the loss of the 0% rate is painful, we need to keep perspective.

Even with the new rules, an EOT remains the most tax-efficient way to sell a business. 

Trade Sale: You pay 24% CGT (after your limited BADR allowance is used up).

EOT Sale: You pay an effective rate of 12%.

On a £5m exit, an EOT still saves you roughly £600,000 in tax compared to selling to a competitor. That is significant.

However, the gap has narrowed. The decision to sell to an EOT can no longer be driven solely by tax greed. It must now be driven by the genuine desire to preserve your legacy and protect your staff—which was the government’s intention all along.

The “Compliance Tightening” Continues

This budget also reinforced the stricter governance rules introduced in late 2024, which are now fully operational:

Trustee Residency: To prevent offshore tax avoidance, all EOT trustees must be UK residents. 

  If you were planning an offshore structure, that door is firmly closed.

The “Control” Test: You (the seller) cannot retain “control” of the Trust board. The days of selling your business but keeping 100% of the decision-making power via the Trust are over.

Fair Market Value: HMRC is aggressively auditing valuations. If you sell to an EOT for £10m, but the independent valuation says it’s worth £8m, the excess £2m is treated as employment income (taxed at up to 45%), not capital gains. Rigorous valuation modeling is now non-negotiable.

What This Means for Your Exit Strategy

If you are currently exploring an exit, the math has changed, but the logic hasn’t.

The Pros of EOT (2025 Edition):

Still half the tax rate of a trade sale.

No “Buyer Risk” (no need to find a third party). 

No “Trade Secrets” risk (no competitors looking at your books).

You protect your employees’ jobs.

The Cons:

You now need to fund a tax bill. 

 Previously, sellers received 100% of the initial cash tax-free. Now, you must ensure the upfront payment from the company’s cash reserves is large enough to cover your 12% tax liability.

The Party Isn’t Over, It’s Just Sobering Up

The “Wild West” era of EOTs is finished. The government has signaled that it supports genuine employee ownership but will no longer subsidize tax avoidance. 

At Dexterity Partners, we believe this is actually a positive step for the industry. It removes the “cowboy” schemes and leaves a robust, sustainable model for owners who care about their legacy.

FAQ’s

What changed to Employee Ownership Trust tax relief in the Autumn Budget 2025?

In the Autumn Budget 2025, the government reduced Employee Ownership Trust (EOT) tax relief from 100% to 50%. This means sellers are no longer fully exempt from Capital Gains Tax (CGT) when selling to an EOT, fundamentally changing the economics of EOT exits.

How much Capital Gains Tax do you now pay when selling to an EOT?

Under the new rules, only 50% of the gain on an EOT sale is exempt from Capital Gains Tax. The remaining 50% is taxed at the prevailing CGT rate (currently 24%), resulting in an effective tax rate of approximately 12% on the total sale value.

Is an Employee Ownership Trust still tax-efficient after the changes?

Yes, an Employee Ownership Trust remains the most tax-efficient exit for many owners. Even after the reduction in relief, selling a business to an EOT typically results in a lower overall tax bill than a trade sale, where gains are taxed at the full CGT rate.

How does an EOT sale compare to a trade sale after Budget 2025?

When comparing EOT vs trade sale, an EOT sale usually results in an effective tax rate of around 12%, while a trade sale is taxed at up to 24% after BADR is used. For most owners, the business sale tax savings still strongly favour an EOT as an exit strategy.

Why did the government reduce EOT Capital Gains Tax relief?

The government reduced EOT tax relief because the scheme’s cost to HMRC had grown to over £2 billion annually. The Chancellor argued that 100% CGT relief was disproportionate compared to other exit routes, prompting the EOT tax changes introduced in the 2025 Budget.

What new compliance rules apply to Employee Ownership Trusts?

Recent EOT compliance tightening requires all EOT trustees to be UK residents and enforces a stricter control test, preventing sellers from retaining effective control of the trust. These rules ensure Employee Ownership Trusts are used for genuine employee ownership rather than tax avoidance.

How does HMRC treat EOT sales above fair market value?

If an EOT sale exceeds fair market value, HMRC may treat the excess as employment income, taxed at up to 45% rather than as capital gains. Robust, independent EOT valuation is now essential to avoid punitive tax consequences.

Do I now need cash to pay tax when selling to an EOT?

Yes. Under the new rules, sellers must plan for a tax liability when selling a business to employees via an EOT. This means ensuring the company can fund sufficient upfront consideration to cover the seller’s CGT bill, which was not required under the previous 100% relief.

Who should still consider an Employee Ownership Trust exit?

An Employee Ownership Trust exit remains ideal for owners focused on succession planning, protecting employees, and preserving their legacy. While tax savings are reduced, EOTs still offer stability, continuity, and a lower-risk alternative to third-party sales.

How can a corporate finance advisor help with an EOT sale under the new rules?

An experienced EOT advisor or corporate finance advisor helps structure the transaction, model post-Budget tax outcomes, ensure compliant EOT valuation, and manage HMRC scrutiny. Professional advice is now critical to executing a successful EOT sale under the revised rules.