Employee Ownership Trusts (EOTs) were in the firing line in last week’s UK Budget, with the Government confirming a significant cut to the Capital Gains Tax (CGT) relief that applies when companies are sold into employee ownership.
From November 2025, CGT relief on qualifying disposals to EOTs will be reduced from 100% to 50%. While EOTs will remain tax-advantaged compared with most other exit routes, the move marks the first major rollback of a relief that has been central to the growth of employee ownership in the UK over the past decade.
Under the new rules, sellers to EOTs will still benefit from a materially lower tax outcome than under a conventional trade sale, with PwC estimating that the revised relief should deliver an effective CGT rate of around 12%.
In 2024 around 10 companies transitioned to employee ownership every week in the UK using the EOT model. The decision by Chancellor Rachel Reeves demonstrates that employee ownership is not immune from the enormous fiscal pressure the public purse is facing in the UK, although the UK Treasury stressed that it continues to support employee ownership as a business succession model.
Why target EOTs?
With no changes announced to headline rates of income tax, corporation tax or VAT, the UK government has relied instead on freezing allowances, increasing certain rates elsewhere and trimming the cost of specific reliefs.
EOTs have also been attracting increasing scrutiny. Media commentary and policy debate have focused on transactions where founders sell 51% of a business to a debt-funded EOT, retain a 49% stake and later pursue a full exit. While such structures can be entirely legitimate, they have fuelled concerns that EOTs are sometimes being used primarily as a tax-efficient exit mechanism rather than as a long-term employee ownership model.
Lesson for Ireland
As momentum grows for the introduction of EOTs in Ireland, and IPSA Chair Marie Flynn said the change was a timely reminder for Ireland as it considers its own employee ownership framework.
“The UK government has clearly decided that full CGT exemption for EOTs is no longer sustainable in the current fiscal climate,” she said. “The relief has been reduced rather than abolished, which shows ongoing political support for employee ownership.”
“For Ireland, this underlines the importance of designing an EOT regime that is robust, well targeted and focused on genuine employee benefit from the outset.”
Employee Ownership Ambassador Graeme Nuttall OBE and IPSA Chair Marie Flynn
UK employee ownership expert Graeme Nuttall OBE, who played a central role in the development of the UK’s EOT regime, down-played suggestions that the Budget represents a retreat from employee ownership.
While acknowledging disappointment at the scale of the reduction, Nuttall emphasised that EOTs remain favourably treated compared with most alternative exit routes and that the core structure of the regime remains intact. His assessment is that the change represents a fiscal recalibration rather than a rejection of the model itself.
He also added that “the change will require some level of rethink for those businesses wishing to transition to an EOT in the UK as they will now need to fund an upfront tax cost which was not previously an issue. There is a helpful provision in UK tax legislation, a right to pay tax by instalments, which can alleviate this issue but further discussions are needed with HM Revenue & Customs to ensure this works practically and with sufficient certainty.”
Mixed messages
Elsewhere, the UK Budget sent mixed messages on share ownership more broadly. On the positive side, the Government announced a three-year Stamp Duty Reserve Tax holiday for new listings on the London Stock Exchange, aimed at boosting IPO activity and making the UK more competitive as a listing venue.
Enterprise Management Incentives (EMI) are also being significantly expanded from 2026, bringing many more companies into scope.
However, dividend tax rates are set to rise, and various allowances are being tightened – measures that again reflect the overriding need to raise revenue.
For Ireland, the UK Budget offers a clear case study. Employee ownership can scale quickly and attract strong political support – but success brings fiscal cost and increased scrutiny.
As Marie Flynn said: “Ireland has the benefit of learning from the UK’s experience in full. A well-designed EOT regime can support succession, protect jobs and strengthen employee engagement – but it must also be credible and resilient when the fiscal environment tightens.”
