Employee ownership trusts (EOTs) have become the go-to exit route for founders who want to keep their firm independent, reward staff and shelter the sale gain from capital gains tax (CGT). Between 2014 and October 2024 almost 2,000 UK companies moved into employee ownership, a trend encouraged by the headline 0% CGT relief and the promise of long-term cultural continuity. Yet the Autumn Statement on 30 October 2024 introduced the first meaningful tightening of the rules since EOTs were launched a decade ago.
Directors who sell to an EOT can no longer remain in control of the board; the claw-back window for CGT relief has been stretched from three to four years; and HMRC has been given new powers to challenge “optimistic” share valuations. In parallel, the Office for Budget Responsibility expects CGT receipts to fall to £13.3bn in 2025/26 – 8.5% down on 2023/24 (OBR, 2025). The Chancellor clearly wants to protect the Exchequer without derailing a regime that boosts employee engagement.
So does the post-2024 rulebook make EOTs less attractive, or simply a little harder to implement? In this article we set out what has changed, why the zero rate still matters, and the practical steps established businesses should take if they want to secure an EOT sale before retiring.
What changed in the Autumn Statement 2024
- Director control test: From 30 October 2024 anyone who sells a majority shareholding to an EOT must step down as a director, or remain as a minority on the board with no casting vote.
- Longer CGT relief claw-back: If the trust breaches any qualifying condition within four years of the sale, the former owner’s entire CGT exemption is withdrawn.
- Valuation discipline: Share valuations must now follow the “willing buyer, willing seller” yardstick. HMRC can request an independent review and impose penalties if the agreed price exceeds market value by more than 10%.
- Additional disclosure: Sellers must report headline sale proceeds and employee headcount on their self assessment return for the year of disposal, allowing HMRC to cross-check compliance (HMRC, 2025).
None of these points remove the tax reliefs, but they do underline the need for early planning and objective advice.
Why the 0% CGT relief is still compelling
CGT has become significantly more expensive for business owners. The higher rate is now 24%, and the annual exemption has been sliced to just £3,000. Against that backdrop, a zero rate looks remarkably generous. HMRC’s own evaluation, published in May 2025, found that the CGT saving was the main motivator for two-thirds of founders who chose an EOT (HMRC, 2025).
At the same time, staff costs are squeezing margins. According to the ONS Business Insights bulletin (5 June 2025), 77% of companies with 10 or more employees reported higher wage bills over the past quarter (ONS, 2025). An employee-owned structure allows bonuses of up to £3,600 per head to be paid free of income tax – a useful lever when cashflow is tight but retention matters.
The new director control test – practical implications
Founders who wish to remain involved after the sale must tread carefully. Staying on as a paid adviser or a non-executive is perfectly acceptable, provided:
- they hold no more than 25% of board votes
- they cannot appoint or remove the majority of trustees
- their remuneration is arm’s length.
In practice, that means reshaping governance before the sale. We often suggest:
- updating the articles:
- clear trustee appointment rules
- a reserved-matters list limiting founder vetoes
- creating a skills matrix for the post-sale board and recruiting an independent chair.
These steps show HMRC that control is genuinely passing to the trust, reducing audit risk later.
Valuation tightening – getting the price right
Under the 2024 reforms the sale price must now be commercially justifiable. Over-valuations expose both the seller and the trust to claw-back and penalties. Our valuation team uses three cross-checks:
- maintainable EBITDA (earnings before interest, taxes, depreciation and amortisation) vs sector multiples
- discounted cashflow with conservative growth assumptions
- recent third-party offers (if any).
We also encourage sellers to obtain a post-transaction valuation check from HMRC – a non-statutory clearance that gives comfort on the agreed figure. Because the claw-back period now runs to 2029 for late-2025 deals, peace of mind matters.
Practical steps for a smooth EOT transaction
Early preparation is the single biggest success factor. A typical timeline looks like this.
- Feasibility modelling
- Forecast cashflow
- Confirm debt capacity to fund vendor notes
- Governance reshuffle
- Board composition
- Draft trustee deed and employee council charter
- Valuation and clearance
- Independent report
- Submit HMRC check
- Finance structure
- Bank or vendor loans
- Agree repayment waterfall
- Communication plan
- All-staff briefings
- FAQ microsite on the intranet.
Our team at Wells Associates can run the whole process, or slot in alongside your existing advisers. For a deeper look at the numbers, explore our business valuation service or check our guide to exit planning.
Alternatives to consider
EOTs are not a one-size-fits-all answer. A trade sale can deliver immediate cash but risks culture shock. A management buy-out keeps leadership continuity but often leans heavily on bank debt. Partial sale to private equity injects growth capital yet dilutes ownership. We regularly model each path against your goals for price, timing and legacy before recommending the most suitable route.
Still a powerful option – if you plan
EOTs remain the only mainstream route to a zero-CGT exit while handing the business to the very people who know it best. The 2024 reforms do tighten the screws, but they do not shut the door. With realistic valuations, robust governance and early professional input, an employee ownership trust can still tick every box – tax efficiency, staff engagement and long-term independence.
Thinking about succession during the 2025/26 tax year? Talk to us about employee ownership trusts and discover whether an EOT is the right fit for your future.