Scaling back, not stepping back on employee ownership 

The November 2025 Budget reduced Capital Gains Tax (CGT) relief on sales of companies to Employee Ownership Trusts (EOTs) from 100% to 50%. While this marks a scaling back of the tax relief available, the Government has reaffirmed its strong support for employee ownership as a viable and sustainable business model.  

The headline change is clear: from 26 November 2025, only half of the gain on disposals to EOTs will be exempt from CGT. The other half will be chargeable, with no Business Asset Disposal Relief or Investors Relief available. Despite these changes, a sale to an EOT continues to provide a lower effective rate of tax than other disposal routes, such as a sale to a third party.  

The Government has acknowledged that this adjustment to the tax incentives for EOT is a reflection of the need to balance fiscal responsibility with continued encouragement of employee ownership. In this sense, the measure is less about removing incentives and more about ensuring sustainability and filling the ‘black hole’.  

Government commitment to employee ownership 

Despite the reduction, ministers have been keen to stress that EOTs remain central to the UK’s economic vision. Blair McDougall, Minister for Small Business and Economic Transformation, stated: 

“I want to ensure that co-operatives and mutuals are not just supported but championed as a vital part of the UK’s economic future and building on the sector’s proud heritage.” 

Although this message risks being overshadowed by the tax relief cut, it underscores the Government’s commitment to employee ownership as a long-term model, and the compromise helps safeguard the longevity of EO as a sustainable ownership. 

Why employee ownership matters 

Employee-owned businesses have consistently been shown to increase productivity, resilience, and employee engagement. By giving workers a stake in the company, EOTs foster stronger alignment between management and staff, leading to better performance and stability during economic downturns.   

The EOT model alone will not secure these outcomes, which require transparency, financial literacy, employee influence and effort to secure strong engagement. Some commentators have suggested that the change in the relief would not prevent those exploring EO for the “right reasons” from doing so. Whilst there may be some truth to that opinion, it is likely that smaller companies, with limited reserves and access to finance, might not proceed with what would otherwise be a move to EO because the funds available upfront will be insufficient to offset the tax due as a result of the changes. Our hope for the sector is that this does not prevent those otherwise seeking EO for the “right reasons” from accessing it.   

Even with reduced relief, selling to an EOT continues to be tax-efficient and an effective way to address succession planning, allowing business owners to pass their companies into the hands of those responsible for the success of the business, helping them to ensure that such wealth continues to flow into the local community.  

Conclusion 

For business owners, the message is clear: EOTs remain a highly attractive succession option. The CGT relief may be less, but the benefits of employee ownership, greater productivity, resilience, and cultural strength, remain unchanged. 

The November 2025 Budget signals a recalibration rather than a retreat. For entrepreneurs planning succession, selling to an EOT remains a compelling route. But it is important to remember that there are other options available to sellers too. 

As a full-service law firm, Birketts offers expert advice across the full range of succession planning options, assisting clients to identify the most appropriate route for them. If you would like to discuss your options to exit further, then please do not hesitate to contact us.