For years, Employee Ownership Trusts (“EOTs”) were sold on a single headline: 0% Capital Gains Tax but that headline has now changed. Since November 2025, EOT sales are now taxed at 12% but despite this tax hike many business owners are still choosing the route as their preferred exit strategy. This demonstrates that EOTs were never solely about the tax advantage. Today, more than 350 UK businesses a year are transitioning into Employee Ownership Trusts. They do so not because it is the cheapest exit, but because it is often the best one strategically, culturally, in terms of speed and personally.
The succession problem nobody talks about is for many founders, the hardest part of future succession is not price it is trust. That is trust that the buyer will protect the culture, employees will not be collateral damage, and the business will not be stripped of what made it successful.
Trade sales and private equity can deliver certainty of cash, but they rarely deliver certainty of legacy. In many cases, founders simply cannot find a third-party buyer who shares their values, timeframe, or vision. An Employee Ownership Trust solves a different problem: it offers continuity without compromise.
Why founders are choosing Employee Ownership Trusts
At its core, an EOT is a transfer of control to a trust that exists solely for the benefit of employees. However, the real appeal lies deeper. Founders choose EOTs because they:
- Want to protect independence and culture
- Want to reward the people who created the value
- Want a vendor/advisor-led, fast, and private exit (no trade buyers)
- Want the option to step back gradually, not disappear overnight
The tax position of 12% CGT (versus the 24% on most trade sales) remains attractive but it is a supporting factor, not the driver. The good news is that although Employee Ownership Trusts have deferred consideration, HMRC has confirmed that it is possible to stagger tax (subject to application) on EOT sales. Please note BADR does not apply to EOT’s. It does to trade sales, but it is now limited, from April 26 to the first £1 million at 18% CGT per executive shareholder.
Value without a fire sale
One common misconception is that EOTs involve “discounted” pricing, they do not. To qualify for tax relief, EOT transactions must take place at not more than the market value, supported by independent, arm’s-length valuations. In practice, many founders prefer this process to trade sales, where value can be eroded by due diligence risk, earn-outs, and buyer leverage.
Most EOTs are funded through a mix of deferred consideration and perhaps some modest bank debt, repaid from future profits over six to eight years. This aligns incentives tightly: employees are motivated to grow the business because they are now its long-term stewards.
Crucially, EOTs are not just about who owns the shares they change how businesses behave. When employees know the company will not be sold to a third party, something shifts. Decision-making improves, employee retention strengthens and accountability increases. Businesses often become more resilient, not less so. This is not ideology; it is structure. Ownership creates alignment, and alignment drives performance.
Governance, not abdication
EOTs are sometimes misunderstood as “giving the business away.” In reality they require stronger governance, not weaker. Professional trustees provide oversight and HMRC credibility. Boards continue to run the business and founders often remain involved during the transition, supporting leadership development and strategic continuity.
What changes is not management but mindset.
EOTs can sell businesses in the future, but they are not designed for short-term flipping. They are long-term ownership models rooted in stewardship and sustainability. That is precisely why they work. As succession challenges intensify across the SME market, EOTs are emerging as a serious, scalable solution, one that blends commercial realism with purposeful capitalism.
As Employee Ownership Trusts gain traction as a mainstream succession option, a number of recurring questions arise. The following section addresses these directly.
1. How will my sale to an EOT be valued at a commercial value?
An EOT acquisition must not be more than the market value to qualify for tax relief. Avondale, acting for the company, carries out an independent professional valuation (usually EBITDA based, with appropriate multiples and adjustments). HMRC expects the valuation to be defensible and arm’s length, and the trustees confirm the process. Many prefer an EOT valuation as trade sales can be more complex and rely on third parties.
2. How is an EOT purchase financed?
Most EOTs are financed through a combination of external bank debt (often modest) and deferred consideration (the majority of the price) against future profits. Deferred consideration is typically repaid over 5 to 8 years from post-sale profits, which is normal and expected in EOT transactions.
3. Is deferred consideration guaranteed in EOTs?
Deferred consideration is not guaranteed but is contractually protected through fixed repayment schedules (subject to cash availability), interest on balances, financial covenants, and information rights. The risk is similar to leaving money invested in the business, but usually with strong alignment, as employees are motivated to maintain profitability.
4. Can I stagger CGT in line with deferred consideration?
If EOT conditions are met, you can apply under S280 in your tax returns to stagger the tax alongside deferred consideration used to finance the sale.
5. Should I sell 100% now to an EOT, or do a partial sale?
To qualify for EOT relief, the trust must acquire a controlling interest (>50%). In practice, most sellers choose to sell 100% for simplicity, certainty and to avoid future minority shareholder issues.
6. How are EOT’s administered for employees?
Employees do not hold shares directly. The EOT holds shares on trust for a class of beneficiaries (current employees). Joiners and leavers are handled automatically under the trust deed, with no share issuance, buy-back, or valuation on employee exit, thereby keeping administration straightforward.
7. Can I control the business post-sale, and what is the trustee’s role?
Post-sale control involves a board of directors running the company, with trustees overseeing strategic decisions and protecting the interests of the beneficiaries. Sellers may remain as directors to influence during the loan repayment period, but do not have casting votes. A professional trustee provides independence, HMRC credibility, and governance oversight however, they do not run the business on a day-to-day basis but act as a safeguard.
8. How quick is the EOT process and HMRC approval?
A typical timeline is preparation & valuation: 4 to 6 weeks, legal, funding and HMRC documentation: 6 to10 weeks.
9. Can deferred consideration be insured for IHT purposes?
Yes. Common planning includes life insurance written in trust to cover deferred consideration, protecting your estate. Some sellers also choose to gift loan notes.
10. Risks and advantages versus a trade sale
Compared to a trade sale, Employee Ownership Trusts trade speed and cash certainty for tax efficiency, continuity, and long-term employee and management alignment.
11. Can an EOT be resold and are they long-term models?
An EOT can sell the company in the future (to a trade buyer, private equity, or other investor), provided the trustees act in the interests of the beneficiaries. In practice, most Employee Ownership Trusts are long-term ownership models, not short-term exits. Later sales are usually strategic and may have high tax consequences. EOTs are best seen as long-term transitions to a more mutual, employee-focused ownership model rather than a pure share scheme.
Contact us
For founders who see their business not just as an asset, but as a legacy, the smartest exit may be the one that does not feel like an exit at all, an EOT. With 30 years’ of experience delivering transactions, Avondale can help you to impartially compare your exit options from EOT’s to trade and private equity sales and look at the pros and cons of each.
If you would like more information about Avondale’s services or case studies on our recent EOT deals or M&A deals, please visit our website at https://avondale.co.uk. Alternatively, if you would like a free consultation with one of Avondale’s experienced M&A advisors, please call Avondale on +44 (0)20 7788 8250, email us at av@avondale.co.uk or fill out the attached form to arrange a free consultation to discuss your ‘perfect’ business sale.
This article has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for any specific tax, legal or accounting advice. Regulated advice bespoke to your circumstances is essential.
