Autumn Budget 2025 — Employee Ownership Trust capital gains tax changes explained

While much of the recent Autumn Budget was the subject of open speculation, one change that certainly caught everyone by surprise was the Chancellor’s decision to change the capital gains tax (CGT) relief available for disposals to Employee Ownership Trusts (EOTs).  

With effect from Budget Day, the full CGT exemption has now been replaced with a 50% relief. This means that selling shareholders will now pay CGT on half of their capital gains, rather than receiving a complete exemption. 

For higher-rate taxpayers, this will effectively result in a CGT rate of 12% compared to the standard 24% main rate applied to other forms of share disposal. HMRC has confirmed that business asset disposal relief (BADR) — currently a CGT rate of 14% but increasing to 18% from April next year — won't be available in circumstances where the 50% EOT relief is claimed. 

Here, leading employee ownership expert Stephen Hadlow explains what this change means in practice for business owners considering an EOT exit.

Managing the change

The concern for some owners will be balancing the requirement to pay CGT by the self-assessment deadline while at the same time spreading purchase price instalments to avoid putting the business under financial pressure. 

This may encourage owners to look more closely at external debt to help increase a ‘day one’ payment. Existing tax rules will also help to mitigate the impact of having to fund a CGT bill in circumstances where a significant element of the purchase price remains to be paid. These rules enable an element of the CGT liability to be deferred over a period of up to eight years. Where this relief applies, selling shareholders will be able to pay their tax while taking home something from each instalment payment.

EOTs remain a highly attractive route to exit

While this marks a departure from the long-standing zero rate, a sale to an EOT remains a significantly more tax-efficient succession solution than other more mainstream exit routes. 

Importantly, this change shouldn’t be seen as a reversal in the Government’s support for employee ownership. Arguably, EOTs have become a victim of their own success thanks to the seemingly unstoppable growth of the EOT model, with estimates of some £6.8bn of chargeable gains becoming subject to CGT in the first full year as a result of the change to EOT relief. 

In the context of increases to CGT rates introduced in 2024, there’s also little doubt that the Chancellor felt a correction was needed to address what had become an unusually wide gap. In this sense, the reform is best viewed as an inevitable recalibration against the backdrop of general increases in taxation, rather than a ‘rowing back’ of Government support for the EO sector.

Indeed, despite the reduced relief, the relative position of the EOT remains strong. With BADR rising to 18% in April and standard CGT rates remaining at 24%, the effective 12% CGT rate for a sale to an EOT continues to deliver an attractive tax saving.  

Strengthening the EO sector over the long term

For the vast majority of owners considering an EOT, succession stability, cultural continuity and employee engagement come higher up the list than tax incentives. While only time will tell, if owners who are singularly motivated by an opportunity to avoid tax are less encouraged to seek out an EOT, this can only strengthen the long-term credibility and sustainability of the EO sector. 

If you’re considering an EOT sale and unsure how this reform affects your plans, our employee ownership experts are here to discuss the implications and support you with your plans.

As one of just a handful of advisers in the UK to have been awarded ‘specialist adviser’ status by the Employee Ownership Association (EOA), we provide the strategic guidance you need to secure the legacy and future of your business.

Book a meeting with us today by calling 0333 004 4488, emailing hello@brabners.com or completing our contact form below.