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Can your business afford to buy itself?

Most Employee Ownership Trusts are paid for out of profits the company hasn't earned yet. The trust starts with no money, so you get paid over several years from future trading. That makes affordability the question that decides everything. Can the business really service the deferred consideration, and will your tax bill arrive before your money does?

The rules changed on 26 November 2025. Capital Gains Tax relief on a qualifying disposal to an EOT was cut from 100% to 50%. Half the gain is now chargeable. The other half is held over into the trustees' base cost, so it comes back into charge if the trust ever sells. Business Asset Disposal Relief and Investors' Relief can't be claimed alongside it. At the 24% main rate on shares, the effective rate works out at about 12%. A lot of advice online still says selling to an EOT is tax free. It isn't. Source: HMRC, Capital Gains Tax: Employee Ownership Trusts relief reduction.

Model your deal

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The deal

Price agreed for your shares The controlling interest being sold to the trust

Cash paid on completion From company cash or bank debt

Your base cost What the shares originally cost you — often nominal if you founded the company

Completion date Sets the tax year and the CGT due date. This tool models disposals on or after 26 November 2025.

The business

Annual profit before tax The profit you'd expect in a normal year, not your best one

Annual profit growth Be conservative. 0% is honest.

Corporation tax rate 25% main rate; 19% below £50k profit, with marginal relief between

Profit available to fund the trust After capex, working capital and reinvestment. Most businesses can't sustain more than 60–75%.

Interest on deferred consideration Often 0%. Must not exceed a reasonable commercial rate, or the relief is at risk.

Your CGT rate 24% for higher-rate taxpayers; 18% within the basic rate band

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The explanation below covers the same ground, and the arithmetic is not complicated: take your sustainable profit, tax it at 25%, take the share of what is left that the business can genuinely spare after capex and working capital, and see how many years of that it takes to pay off the price you have not been paid on completion. Then check whether your Capital Gains Tax bill falls due before you have received that money.

How this calculation works

The trust buys your shares but has no cash of its own. In nearly every deal the company funds the trust out of future post-tax profits, and the trust passes that money on to you as deferred consideration. So the profits simply have to be there.

One point here is widely got wrong, including by people who should know better. HMRC used to accept that a company's contributions to the trust to fund the purchase were not distributions. It has since changed its mind. Its current view is that they are distributions under section 1000 CTA 2010, because they are paid out of the company's assets to the trustee in its capacity as a shareholder. What saves you is a separate income tax relief introduced for distributions made on or after 30 October 2024 (section 401ZA ITTOIA 2005), which lets the trustees deduct qualifying acquisition costs. Those costs include the price of the shares, repayment of borrowings taken out to fund the purchase, interest on those borrowings or on deferred consideration up to a reasonable commercial rate, the cost of the valuation, any stamp duty or stamp duty reserve tax, and other reasonable expenses directly connected with the acquisition. The relief has to be claimed, within four years of the end of the tax year. Get this wrong and the trustees have an income tax problem on money that was only ever passing through them to you.

The model runs year by year. It takes your sustainable profit before tax, applies corporation tax, then applies the share of what's left that the business can actually spare after capital expenditure, working capital and reinvestment. That's the cash available to pay you. It repeats each year, adding growth and any interest on the outstanding balance, until the deferred consideration is paid off.

The figure people get wrong is the availability percentage. A company that hands over all of its post-tax profit has nothing left to invest, absorb a bad year or replace a machine. Most can't sustain much more than 60% to 75%. If the EOT takes every spare pound, the business will struggle.

Your tax bill can arrive before your money does

Capital Gains Tax is charged on the whole consideration at the date of disposal. That includes ascertainable deferred consideration you haven't received yet. It's payable by 31 January following the end of the tax year in which you sold.

This didn't matter before 26 November 2025. Relief was 100%, so there was no tax to find. Now that half the gain is chargeable, you can face a real tax bill years before the company has paid you most of the price.

Two parts of the legislation are worth knowing about before you sign rather than after:

Section 280, TCGA 1992. Where the consideration is payable by instalments over a period of more than 18 months, you can elect to pay the tax by instalments too, spread over up to eight years and ending no later than your final consideration instalment. The statute puts this at the option of the seller, so it isn't a concession you have to talk HMRC into — though HMRC does set the profile of the instalments, and you do have to claim it. Note a single deferred lump sum isn't "payable by instalments" and won't qualify.
Section 48, TCGA 1992. If consideration you've already been taxed on turns out to be irrecoverable, you can claim relief. What counts as irrecoverable when a company just underperforms for years but keeps going isn't well settled.

Either way, January is the wrong time to find out. Model the payment schedule, the instalment position and your own cash flow together while the price and payment profile are still up for negotiation.

What this tool doesn't do

It won't tell you whether you qualify for an EOT, what your company is worth, or whether employee ownership suits your people. Those things matter, and plenty of firms will talk you through the qualifying conditions.

It answers the question a trust deed can't fix. Can the business pay for itself, and can you afford the tax while it does?

Want the proper model?

This calculator is a straight-line approximation. A real EOT funding model has seasonality, bank covenants, capex cycles, working capital swings and a management team who still need paying and motivating once you've gone. I build those, and I stay on as Finance Director afterwards to help the business deliver them.

I'm a Fellow of CIMA with 29 years' post-qualification experience and I was Finance and Operations Director of an £850m group. I also sit on the trustee board of an employee-owned company, so I've lived with an EOT after completion rather than advising on one and moving on.

Talk through your numbers

Questions people ask

Can my business afford to be sold to an EOT?

It depends on whether the company's future post-tax trading profits can service the deferred consideration within an acceptable period. The trust normally has no money of its own, so the price is paid out of profits the business has not yet earned. As a rule of thumb, if the deferred consideration is more than about four to six years of the profit genuinely available after tax, reinvestment and working capital, the deal will strain the business. The calculator on this page models it year by year rather than relying on a rule of thumb.

How much Capital Gains Tax do I pay when I sell to an EOT?

For disposals on or after 26 November 2025, relief on a qualifying disposal to an Employee Ownership Trust is 50%, not 100%. Half the gain is chargeable immediately and the other half is held over and deducted from the trustees' acquisition cost, so it comes back into charge on a later disposal by the trust. Business Asset Disposal Relief and Investors' Relief cannot be claimed where EOT relief under section 236H TCGA 1992 is claimed. At the 24% main rate for shares, the effective rate is approximately 12% of the gain. Before 26 November 2025 the relief was 100% and the disposal was free of Capital Gains Tax, which is why a great deal of published UK advice is now out of date.

If the EOT pays me out of future profits, when is my Capital Gains Tax due?

Capital Gains Tax is charged by reference to the whole consideration at the date of disposal, including ascertainable deferred consideration you have not yet received, and it is payable by 31 January following the end of the tax year in which the disposal took place. When relief was 100% this did not matter because there was no tax to pay. Now that half the gain is chargeable, a seller can face a substantial tax bill long before the company has paid them most of the purchase price. Section 280 of the Taxation of Chargeable Gains Act 1992 allows the tax to be paid by instalments where the consideration itself is payable by instalments over a period exceeding 18 months, and section 48 gives relief where consideration ultimately proves irrecoverable. This calculator shows the gap between the tax due and the cash actually received by that date.

Important

This calculator is an educational model, not tax or financial advice, and no adviser-client relationship arises from using it. It makes simplifying assumptions: that deferred consideration is ascertainable and therefore taxed at disposal; that payments are made annually on the anniversary of completion; that profit, tax rates and the availability percentage stay constant; and it ignores the annual exempt amount, other gains and income in the tax year, any interest or Marren v Ingles valuation of unascertainable consideration, and the future charge that arises when the held-over 50% crystallises on a later disposal by the trustees. Your own position will differ. Take advice specific to your circumstances before you commit to anything. Tax treatment depends on individual circumstances and may change.