Employee ownership the business can actually afford

An Employee Ownership Trust is a trust that holds shares in a company for the benefit of all its employees. Rather than selling to a competitor or private equity, an owner sells a controlling interest to the trust, and the business carries on with its culture, people and independence intact. It is a well-established route to succession, introduced by the Finance Act 2014 and used by employee-owned businesses across the UK.

Relief under section 236H of the Taxation of Chargeable Gains Act 1992 depends on eight statutory requirements. Five have applied since 2014: the trading requirement (the company must be a trading company, or the principal company of a trading group); the all-employee benefit requirement (the trust must benefit all eligible employees on broadly the same terms); the controlling interest requirement (the trust must acquire and keep more than 50% of the shares); the limited participation requirement (broadly, the participator fraction must not exceed two-fifths, which blocks relief where 5% shareholders and people connected to them make up too much of the workforce); and the related disposal requirement. Three more apply to disposals made on or after 30 October 2024: the trustee residence requirement (the trustees must be UK resident); the trustee independence requirement (fewer than half the trustees may be excluded participators, and they must not control the trust, so you cannot sell your company and still run the trust that owns it); and the consideration requirement (the trustees must not pay more than market value). There is no cap on company size or employee numbers, which is why an EOT suits businesses from small to large. The conditions are set out in HMRC's Capital Gains Manual at CG67820.

Yes, but you almost certainly all have to do it in the same tax year, and this catches people out. The related disposal requirement in section 236H(4)(e) and (6) TCGA 1992 means relief is not available on a disposal if section 236H already applied to a related disposal made in an earlier tax year, either by you or by anyone connected with you. A disposal is related if it is of shares in the same company, or in a company in the same group.

So if one shareholder sells and claims relief this year, and another sells next year, the second one gets nothing. A husband and wife are connected, so one spouse's earlier claim blocks the other's. In practice relief is available for one tax year per company or group, and every selling shareholder needs to be in it. Plan the timetable before anyone signs anything.

This changed at the Autumn Budget 2025 and a lot of published advice is now out of date. Selling to an EOT used to be completely free of Capital Gains Tax. For disposals on or after 26 November 2025, relief is cut to 50%: half the gain is chargeable now, and the other half is held over and deducted from the trustees' acquisition cost, so it comes back into charge on a future disposal by the trust. Business Asset Disposal Relief and Investors' Relief cannot be claimed where EOT relief is claimed. At the 24% main rate on shares, the effective rate is roughly 12%. The company can still pay employees an annual bonus of up to £3,600 each free of income tax (National Insurance still applies). The conditions must keep being met after completion, and this is where sellers get hurt. If a disqualifying event happens in any of the four tax years following the tax year of your disposal, section 236O TCGA 1992 revokes your claim and your gains are recalculated as if you had never made it. HMRC can make that adjustment regardless of the normal time limits. The clawback period used to be one tax year; Finance Act 2025 extended it to four for disposals on or after 30 October 2024. If a disqualifying event happens after that four-year window, the charge falls on the trustees instead, under section 236P, as a deemed disposal and reacquisition of the shares at market value. So for four years after you have sold and stepped back, other people's decisions can retrospectively cost you your relief, while the trustee independence requirement stops you controlling the trust that owns the company. That tension is the strongest argument for keeping a finance director close to the business after completion.

This is the trap in the new rules, and it catches sellers out. Where the deferred consideration is ascertainable at completion — instalments of a known amount — Capital Gains Tax is charged on the whole of it at the point of disposal, including the money you have not yet received, and it is payable by 31 January following the end of the tax year of the sale. The disposal date is the contract date rather than completion, so exchanging in late March can pull the bill forward by a year. Until 26 November 2025 this rarely mattered, because relief was 100% and there was no tax to find. Now that half the gain is chargeable, a seller can face a real tax bill long before the company has paid them most of the money. Section 280 TCGA 1992 lets you pay that tax by instalments where the consideration itself is payable by instalments over a period of more than 18 months, spread over up to eight years and ending no later than the final consideration instalment. That is an option the seller elects into, not a concession HMRC grants, and it is worth claiming. Section 48 allows the tax to be adjusted if consideration ultimately proves irrecoverable — genuinely irrecoverable, not merely late or disappointing. If the deferred element is instead unascertainable, such as an earn-out geared to future profits, the position is different again: following Marren v Ingles you are taxed at completion on the market value of the right to those future payments, and taxed again when they arrive. Which of these you are signing up to changes your tax bill and your cash flow, so getting the payment schedule, the instalment position and your personal cash flow modelled together, before you sign, is the single most valuable thing you can do.

The trust rarely has cash of its own, so the purchase price is usually paid over time out of the company's future trading profits as deferred consideration, sometimes alongside an upfront payment or third-party lending. This is the part most owners underestimate. Building a realistic funding model, and being honest about how long payment will take, is the difference between an EOT that works and one that strangles the business.

A typical EOT transition takes around three to six months from feasibility to completion, covering valuation, funding structure, trust and governance setup, legal documentation, and employee communication. The timeline depends heavily on how ready the business is to run without the departing owner.

Phil Southern has established 2 Employee Ownership Trusts for client businesses, and advises owners considering employee ownership as a succession route. His client experience spans businesses from £2m to £20m turnover across manufacturing, distribution, professional services and recruitment.

No. An EOT suits a profitable, stable business with a management team capable of running it once the owner steps back, and an owner who is content to be paid out of future profits rather than taking cash up front from a trade buyer. If the profits will not support the purchase price, or there is no succession team, an EOT is the wrong answer and it is better to know that early.

A part-time Finance Director (also known as a fractional CFO) provides senior financial leadership to businesses on a flexible basis, typically 1-3 days per week. This gives SMEs access to experienced financial expertise - including employee ownership, business planning, and financial control - without the cost of a full-time hire.

Results Driven is based in Yorkshire and works with SMEs across the United Kingdom. I regularly work with businesses in Leeds, Bradford, Sheffield, Harrogate, York, Wakefield, and throughout Yorkshire, as well as clients across the rest of the UK.