How much Capital Gains Tax do I pay on a sale to an EOT in 2026?

For disposals on or after 26 November 2025, only 50% of the gain is a chargeable gain (section 236H(2A) TCGA 1992, substituted by section 35 Finance Act 2026). Before that date the relief was 100% and the disposal was free of Capital Gains Tax. Business Asset Disposal Relief and Investors' Relief cannot be claimed on a disposal where the EOT relief is claimed. At the 24% main rate the effective cost is about 12% of the gain. The relieved half is not forgiven: it is deducted from the trustees' acquisition cost, so it comes back into charge if the trust ever sells the company.

Who pays the tax if the EOT conditions are broken after the sale?

It depends entirely on when it happens. If a disqualifying event occurs in any of the first four tax years following the tax year of your disposal, section 236O TCGA 1992 revokes your claim and your gains are recalculated as if it had never been made, and HMRC may make that adjustment regardless of the normal time limits. That charge falls on the seller. If a disqualifying event occurs after the end of that fourth tax year, section 236P applies instead and the trustees are treated as disposing of and immediately reacquiring the shares at market value. That charge falls on the trustees. Finance Act 2025 extended the vendor clawback period from one tax year to four for disposals on or after 30 October 2024.

Are company contributions to an EOT treated as distributions?

Yes, and this reversed. HMRC previously accepted that contributions to the trustees to fund the purchase were not distributions. HMRC's Company Taxation Manual at CTM15580 now says that view was incorrect, and that such contributions are paid out of the assets of the company in respect of shares, to the trustee in its capacity as a shareholder, and are distributions. What rescues the position is a relief introduced by Finance Act 2025 for distributions made on or after 30 October 2024, in section 401ZA ITTOIA 2005, which lets the trustees deduct qualifying acquisition costs from the distribution. The relief must be claimed, within four years of the end of the tax year. It does not cover the ongoing running costs of the trust.

Is stamp duty payable on a sale to an EOT?

Yes. Stamp duty at 0.5% is payable on the transfer of the shares to the trustees, rounded up to the next £5, and there is no EOT relief or exemption. It is charged on the whole price, including the deferred consideration, with no discount for the fact that most of the money will not be paid for years, and it is due within 30 days of the stock transfer form being executed. On a £6m deal that is £30,000 of real cash, needed at the outset, by a trust that has no money.

Can an EOT-owned company still grant EMI options to its management team?

Yes. There is an express carve-out: the EMI independence requirement is treated as met if the company is subject to an employee-ownership trust (paragraph 9(5) of Schedule 5 ITEPA 2003). CSOP, SAYE and SIP have equivalent carve-outs. But the option pool must be structured so that the trust keeps more than 50% of the ordinary share capital, votes, profits and assets on a winding up. If it drops to 50% or below, the controlling interest requirement fails, which is a disqualifying event, and the company also stops being able to pay the income-tax-free employee bonus.

Is the £3,600 employee bonus free of National Insurance?

No. The exemption in section 312A ITEPA 2003 is an income tax exemption only. HMRC's Employment Income Manual at EIM03050 states that the exemption does not extend to National Insurance contributions, which follow the normal treatment for earnings. So both employee and employer National Insurance are payable, including the 15% employer rate. The bonus is deductible for corporation tax, by virtue of section 1292(6B) CTA 2009.

The Rules

The EOT rules in 2026: what actually catches people out

Most guides to Employee Ownership Trusts tell you what an EOT is. This one tells you where the money and the risk actually sit, because the rules changed twice in thirteen months and a great deal of what is still published online is now simply wrong. If you read only one thing here, read the bit about who pays when it goes wrong. It is probably you, and for longer than you think.

Written by Phil Southern FCMA, a Fellow of CIMA who has established two EOTs and sits on the trustee board of an employee-owned company. Everything below is referenced to the legislation or HMRC's own manuals, so you can check it. Last reviewed: July 2026.

1. What changed, and when

Two Budgets reshaped the EOT regime, and you need to know which set of rules your deal falls under.

From 30 October 2024 (Finance Act 2025), three new conditions were added, and the period during which a seller can lose their relief was extended from one tax year to four.

From 26 November 2025 (Finance Act 2026), the Capital Gains Tax relief was cut from 100% to 50%. Selling to an EOT used to be entirely free of CGT. It is not any more. The statute now says that "only 50% of the gain is a chargeable gain", that the disposal is not a qualifying business disposal for Business Asset Disposal Relief, and that the shares are treated as excluded shares for Investors' Relief.

Section 236H(2A), Taxation of Chargeable Gains Act 1992, as substituted by section 35, Finance Act 2026. See also HMRC's policy paper.

At the 24% main rate for shares, half the gain being chargeable means an effective cost of about 12%. That is still the cheapest exit route in the tax code, and it has no lifetime cap, so on any substantial gain it still beats Business Asset Disposal Relief at 18% on the first £1m. But it is no longer free, and any adviser or website still telling you it is has not read the change.

The half you don't pay is not forgiven, it is parked. The relieved 50% is deducted from the trustees' acquisition cost (section 236H(2A)(d)). So the trust inherits a reduced base cost, and that gain comes back into charge if the trustees ever sell the company. On a £10m sale with a £1m base cost, the gain is £9m, you are taxed on £4.5m of it, and the trustees' base cost becomes £5.5m rather than £10m. Nobody should be modelling a future trade sale by the trust without this in the numbers.

One consequence worth knowing: the relief only applies if you claim it. If you do not claim under section 236H, the bar on Business Asset Disposal Relief never bites. That makes it an either/or election rather than an automatic disapplication — though on current rates the EOT relief wins comfortably.

2. The eight conditions

Relief depends on eight statutory requirements. Five have applied since 2014. Three are new, and apply to disposals on or after 30 October 2024.

Section 236H(4) TCGA 1992; HMRC Capital Gains Manual CG67820.

The original five

Trading requirement. The company must be a trading company, or the principal company of a trading group. Watch this one if you trade through a partnership: a business carried on in partnership is treated as not a trading activity, because control of the company would not carry control of the business.
All-employee benefit requirement. The trust must benefit all eligible employees on the same terms. You may differentiate, but only by remuneration, length of service, or hours worked. You may impose a minimum service period of up to 12 months, and no longer.
Controlling interest requirement. The trust must hold more than 50% of the ordinary share capital, a majority of the votes, more than 50% of the profits available for distribution, and more than 50% of the assets on a winding up. It must also be the case that no agreement or instrument allows any of that to be lost without the trustees' consent. That last limb is a drafting landmine, and it is where option pools cause trouble.
Limited participation requirement. The "participator fraction" must not exceed two-fifths. Broadly, this stops relief where 5% shareholders and the people connected to them make up too much of the workforce.
Related disposal requirement. See section 4 below. This is the one people trip over.

The three added in 2024

Trustee residence. The trustees must be UK resident, as a single body of persons.
Trustee independence. Fewer than half the trustees may be "excluded participators" (broadly, you and people connected with you), and excluded participators must not control the trust. If a corporate trustee is used, the same test applies to its directors. In plain terms: you cannot sell your company and still run the trust that owns it.
Consideration requirement. The trustees must take all reasonable steps to make sure they do not pay more than market value, and that any interest on deferred consideration does not exceed a reasonable commercial rate.

CG67827 (independence), CG67828 (consideration).

The consideration requirement has no safety net. It is a condition of getting the relief at the outset, not a disqualifying event afterwards. So if the trustees overpay, there is no four-year clawback window to survive and no six-month period to put it right — the claim was simply never valid, and HMRC can say so on enquiry. This is why the valuation matters more than anything else in the deal. See section 10.

3. Who pays when it goes wrong

This is the most important thing on this page, and it is the part most sellers do not understand when they sign.

Certain events after the sale are "disqualifying events": the trust losing control, the company ceasing to trade, the trustees ceasing to be UK resident, the trustee independence test failing, the participator fraction going above two-fifths, the all-employee benefit requirement failing, or the trustees acting outside the trusts.

Who gets taxed depends entirely on when the event happens.

Who bears the tax charge on a disqualifying event, by timing
When it happens	Provision	Who pays	What happens
In the tax year of the sale	s.236H(4)	You	The conditions were never met. No relief at all.
In any of the first four tax years following the tax year of the sale	s.236O	You	Your claim is revoked. Gains recalculated as if it had never been made. HMRC may adjust regardless of the normal time limits.
After the end of that fourth tax year	s.236P	The trustees	The trustees are treated as selling and immediately rebuying the shares at market value. Your relief is left alone.

Sections 236O and 236P TCGA 1992; CG67860 and CG67861. Finance Act 2025 extended the vendor period from one tax year to four.

Read that middle row again. For roughly five years after you have sold up and stepped back, decisions made by other people — a trustee resigning, the trust being allowed to slip to 50%, a distribution made on the wrong terms — can retrospectively take away your relief and land you with a tax bill on a gain you have mostly not been paid yet. And the usual assessment time limits do not protect you.

Now hold that next to the trustee independence requirement, which says you may not control the trust. You carry the risk, but you are forbidden from holding the controls.

What to do about it. You cannot control the trust, but you can make sure somebody competent is watching the conditions every year: the trust's shareholding, the trustee ratio, the participator fraction, the residence of the trustees, and whether distributions are being made on the statutory terms. That is a finance function, not a legal one, and it is exactly why I stay involved with the businesses I take through this rather than handing over a trust deed and leaving.

There is one narrow mercy. If the trustee residence or trustee independence test fails only because a trustee died, and the position is put right within six months, the disqualifying event is ignored. That let-out covers death and nothing else. A resignation does not qualify.

4. The one-tax-year trap

If there is more than one shareholder, you almost certainly all have to sell in the same tax year.

The related disposal requirement says relief is not available if section 236H already applied to a related disposal made in an earlier tax year — by you, or by anyone connected with you. A disposal is related if it is of shares in the same company, or a company in the same group.

Section 236H(4)(e) and (6) TCGA 1992; CG67825.

So if you sell and claim relief this year, and your co-shareholder sells next year, your co-shareholder gets no relief at all. Spouses are connected persons, so one spouse's 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 inside it. Sort the timetable out before anyone signs anything, because there is no fixing it afterwards.

5. How the price actually gets paid

The trust has no money. It buys your shares with cash the company gives it, out of profits the company has not earned yet. That is the whole model, and everything else follows from it.

Company contributions are distributions. HMRC changed its mind.

This is the change most likely to be wrong on the website you were reading before this one. HMRC used to accept that a company's contributions to the trustees to fund the purchase were not distributions. It now says that view was incorrect:

HMRC, Company Taxation Manual CTM15580 "HMRC now views their previous position as incorrect, and instead believes that such contributions are paid out of the assets of the company in respect of shares in that company to the trustee in their capacity as a shareholder and will be distributions… Trustees of EOTs, like other persons who hold shares subject to a trust, remain chargeable to tax on distributions received in respect of those shares."

HMRC CTM15580. Trustees of a discretionary trust are taxed on distributions at the dividend trust rate, currently 39.35%.

What saves you is a relief introduced alongside it, for distributions made on or after 30 October 2024. It lets the trustees deduct their acquisition costs from the distribution: the price of the shares, repayment of borrowings taken out to fund the purchase, interest on deferred consideration up to a reasonable commercial rate, the cost of the valuation, and the stamp duty.

Section 401ZA ITTOIA 2005, inserted by Finance Act 2025, Schedule 6.

Three things about that relief that will cost you if you miss them.

It has to be claimed, within four years of the end of the tax year. It is not automatic.

It only covers acquisition costs. Money the company puts in to cover the trust's ongoing running costs — professional trustee fees, annual compliance, the cost of simply owning the shares — is outside it. That is a taxable distribution on the trustees, and there is no relief for it.

It depends on the EOT conditions being met. So if the valuation is wrong and the relief requirements fail, you do not just lose the CGT relief — every funding contribution becomes a fully taxable distribution too.

The contributions are not deductible for corporation tax

They are paid out of post-tax profit. No deduction: they are distributions, they are capital in nature, and the employee benefit contribution rules block them independently. This is the single biggest economic feature of the UK model, and it is what makes the affordability question so unforgiving. Your company must earn roughly £1.33 of profit before tax for every £1 it pays you.

Do not lend the money to the trust

A loan from the company to the trustees runs straight into the close company loan charge, because the trustee holds more than 50% of the shares and is therefore itself a participator. HMRC says so directly, and an exemption for EOTs was asked for during consultation and refused. The contribution route is the only sensible one.

Section 455 CTA 2010; HMRC CTM61525.

6. Stamp duty: 0.5%, no relief, and it hurts early

Stamp duty at 0.5% is payable on the transfer of the shares to the trustees, rounded up to the next £5. There is no EOT relief or exemption. It does not appear anywhere in the list of stamp duty reliefs or exemptions — and Parliament confirmed the point sideways by listing stamp duty as a cost the trustees are allowed to deduct under the new distribution relief.

Two features make it bite harder than people expect:

It is charged on the whole price, including the deferred consideration, with no discount for the fact that most of it will not be paid for years.
It is due within 30 days of the stock transfer form being executed.

So on a £6m deal, that is £30,000 of real cash, needed at the very start, by a trust that has none. It is the company's problem, and it is almost never in the first draft of anybody's funding model.

Finance Act 1999, Schedule 13; HMRC Stamp Taxes on Shares Manual STSM021100 (deferred consideration is not discounted).

7. Your tax bill can arrive before your money does

Capital Gains Tax is charged on the whole consideration at the date of disposal — including the deferred part you have not been paid — and it is due by 31 January following the end of the tax year of the sale.

Until 26 November 2025 this did not matter, because relief was 100% and there was no tax to find. Now that half the gain is chargeable, a seller can face a very substantial bill years before the company has paid them most of the price. On a £5m deal with £500k on completion, the CGT can easily exceed the cash received by the date it falls due.

Two provisions matter, and both are better known about before you sign than after:

Section 280 TCGA 1992. Where consideration is payable over more than 18 months, HMRC may agree to let you pay the tax in instalments. It is discretionary, and you have to ask.
Section 48 TCGA 1992. If consideration you have already been taxed on turns out to be irrecoverable, you can claim relief.

You can model the gap for your own deal with the affordability calculator, which shows the tax due against the cash you will actually have received by the date it falls due.

8. Keeping your managers motivated afterwards

The most common objection to an EOT, and the least well answered: an EOT gives your management team nothing personal. In a management buyout they get equity. Here, the trust owns the company on behalf of everybody, and the people who actually have to run it and generate the profits that pay you get no more than the receptionist.

You can fix this, and the law explicitly lets you. EMI options work in an EOT-owned company: the EMI independence requirement is treated as met where the company is "subject to an employee-ownership trust". CSOP, SAYE and SIP have equivalent carve-outs. Options granted before the EOT sale are protected too.

Paragraph 9(5) of Schedule 5, ITEPA 2003 (EMI); equivalent provisions in Schedules 2, 3 and 4 (SIP, SAYE, CSOP); section 534(7) ITEPA 2003 protects pre-existing options.

But this is where care is needed, because share options interact badly with three separate EOT conditions:

Dilution. If options are exercised and the trust falls to 50% or below, the controlling interest requirement fails — a disqualifying event, with the consequences in section 3. Cap the pool so that even full exercise cannot take the trust to 50%.
The consent limb. The controlling interest requirement also says no instrument may allow control to be lost without the trustees' consent. An option deed is such an instrument. There is a respectable argument that a pool which could breach 50% on exercise is a problem on grant, not on exercise. HMRC has published nothing on this, so it is a drafting point to be conservative about rather than a settled rule.
The 5% trap. Someone holding an option over 5% or more of any class of shares can be a participator — and growth share classes are deliberately tiny. A participator is an excluded participator, who cannot benefit from the trust at all, and who counts towards the two-fifths participator fraction.

And if the trust drops to 50% or below, the company also loses the ability to pay the income-tax-free bonus, because that relief imports the same controlling interest test.

Worth checking with your adviser: the corporation tax deduction. The corporation tax relief for employee share acquisitions requires that the company is not under the control of another company, and — unlike the ITEPA schedules — it appears to have no EOT carve-out. Where a corporate trustee is used, which is the usual structure, the company arguably is under the control of another company, and the CT deduction on option gains may be lost. Individual trustees would preserve it. This is a real trade-off between limited liability for your trustees and a tax deduction, and it is not addressed in HMRC's guidance.

9. The £3,600 bonus, and the three things people get wrong

An EOT-controlled company can pay each employee a bonus of up to £3,600 a year free of income tax. Three points are routinely misstated.

It is not free of National Insurance. The exemption is an income tax exemption only. HMRC's manual says in terms that it "does not extend to NICs, which follow the normal treatment for earnings". So employee and employer National Insurance both apply, at 15% for the employer. A "£3,600 tax-free bonus" still costs the company employer's NIC on top.
Add, don't multiply. You may vary the bonus by remuneration, length of service, or hours worked. If you use more than one of those, each must produce a separate entitlement and the award must be the sum of them. A formula like "3% of salary multiplied by years of service" breaks the equality requirement and the exemption fails.
You may now exclude directors. Since 30 October 2024 the participation requirement is not infringed by excluding directors from an award. Given the rule that a scheme must not confer benefits wholly or mainly on directors or the highest paid, excluding them outright is often the cleaner route.

Sections 312A to 312I ITEPA 2003; HMRC EIM03050 and EIM03054. The bonus is deductible for corporation tax (section 1292(6B) CTA 2009).

One more, which small professional firms in particular should check before promising anything: there is a separate test requiring that directors and office-holders, plus employees connected with them, do not exceed two-fifths of the workforce. Fail it and you cannot pay the bonus at all.

10. The valuation, and why one error causes three disasters

The trustees must take all reasonable steps to ensure they do not pay more than market value. HMRC expects that to mean obtaining an independent professional opinion, addressed to the trustees. An independent valuation is not literally mandatory in the statute — but "reasonable steps" without one is a difficult argument to run.

Overpay, and three things go wrong at once from the same mistake:

The consideration requirement fails, so the CGT relief was never available — and, as noted above, there is no clawback window to survive and no cure period. It simply was not a valid claim.
The relief on company contributions depends on the EOT conditions being met, so every funding contribution becomes a taxable distribution on the trustees.
Paying more than market value for employment-related securities creates an income tax charge on the excess.

There is no advance HMRC agreement of an EOT valuation. HMRC's advance valuation-check service covers tax-advantaged share schemes, not EOT sales. A post-transaction valuation check is available after the disposal but before the return is filed, and it is now considerably more relevant than it was, because for the first time there is a chargeable half-gain that needs a defensible number.

The honest reason EOT valuations come out below a trade sale headline is not that EOTs get a discount. It is that a trade buyer's price usually contains synergies and strategic premium that are not market value for these purposes — and that the price has to be payable out of profits the business can actually generate.

11. The housekeeping that quietly bites

The trust must register with the Trust Registration Service. There is no EOT exclusion. Registration is generally within 90 days. It is not optional paperwork: the reference is needed to claim the relief on the company's contributions.
Inheritance tax is fine going in, but watch what comes out. Transfers into a qualifying EOT are exempt, and the trust sits outside the relevant property regime, so there are no ten-year anniversary charges. But there is a separate charge when property leaves the employee trust, and the protection against it covers only failures of the trading and controlling interest conditions — not a failure of the all-employee benefit requirement. Distribute on the wrong terms and you can trigger a charge on the whole trust fund.
Interest on your deferred consideration is income, taxed as savings income at your marginal rate — not part of the capital gain. If it is rolled up and compounded, it can all land in a single tax year.
HMRC no longer gives clearance on the close company benefit rules for setting up an EOT, and withdrew that from 30 October 2024. Statutory clearance on the transactions in securities rules remains available and is still routinely obtained.

12. What isn't settled

Anyone who tells you the EOT regime is fully worked out is overselling. These are genuinely open, and I would rather say so than pretend:

What "irrecoverable" means for the section 48 relief. If the company simply underperforms for years but carries on trading, and your deferred consideration never arrives, can you reclaim the CGT you already paid on it — or does the company have to fail first? Nobody has answered this, and after the 2025 change it matters a great deal more than it used to.
VAT on the advisory fees. Much of the work is supplied to the trustees or to the vendors, not to the company, so the company paying the invoice does not make it the company's input tax. Some EOT boutiques still say the VAT is simply reclaimable. I would not rely on that.
Withholding tax on the interest paid to you on deferred consideration. There is a statutory carve-out for payments made in a fiduciary capacity that appears to take a trustee outside the deduction duty, but HMRC's guidance does not engage with it at all. It deserves a reasoned file note before the first payment date, not an assumption.
Whether the sale itself is reportable on an employment-related securities return. On a straight sale at market value, it should not be. The phrase "employee ownership trust" does not appear anywhere in HMRC's ERS manual.

If you take one thing from this

An EOT is not a transaction you close and walk away from. It is a company that has to pay for itself out of profit for the best part of a decade, while you carry the tax risk for four years of it and are forbidden from controlling the trust that owns it.

So the questions that decide whether this works are financial, not legal: can the profits fund the price, what do you actually net and when does the tax fall due, and who is watching the conditions after everyone else has gone home. That is the work I do, and I stay on as Finance Director afterwards to help the business deliver it.

Model your own numbers Talk to Phil

Important. This is a general guide to the law as I understand it in July 2026, not tax or legal advice, and no adviser-client relationship arises from reading it. Tax treatment depends on your own circumstances and the rules change — twice in the last two years, as above. Take advice on your own position before you commit to anything. Where a point is unsettled I have said so rather than smoothing it over, and where I have cited a statute or an HMRC manual you should check it against the current text.