Autumn Budget 2026 — what does it mean for Employee Ownership Trusts?

As has been widely reported, the Budget was a fairly muted affair. In relation to Employee Ownership Trusts (EOTs), there were no changes that amended the core statutory rules or the tax reliefs available when selling to an EOT or sharing profits with employee owners. 

The tax-free limit on a profit share paid to an employee in any tax year remains at £3,600. This means that its real value has been significantly eroded by inflation since it was first introduced in 2014.

So, what other changes arising out of the Budget might affect the EOT landscape? Here, EOT specialist Stephen Hadlow breaks everything down, looking at Business Asset Disposal Relief (BADR), the proposed Founders’ Relief and updates to EMI options.

BADR: what changed

BADR is a relief available for business owners selling their shares where certain criteria are met. It represents a lower capital gains tax (CGT) rate applicable on a limited amount of gains. The value of this relief has consistently been reduced by successive governments — and John Healey’s recent Budget continues that trend. While the current 18% rate remains unaltered, the amount of gains over which the relief applies has now been reduced from £1m to £500,000.   

The tax landscape is therefore marginally less favourable for owners contemplating one of the more traditional exit routes. By extension, this could make an EOT exit relatively more attractive for some business owners. Put another way, the CGT rate ‘gap’ between traditional exit routes and an EOT exit — which narrowed significantly following the 2025 Budget — has now widened slightly again. 

New Founders’ Relief

The Government has proposed a new CGT relief, known as Founders’ Relief. A technical consultation has commenced but the proposal is that the new relief will apply from April 2027, allowing qualifying founders to benefit from a 10% CGT rate on up to £10m of lifetime gains. The current EOT relief (applicable to higher rate taxpayers) produces an effective CGT rate of 12%. Does a new 10% CGT rate via the availability of Founders’ Relief therefore potentially undermine the tax attractiveness of EOTs? 

The devil is in the detail. While we await the outcome of the consultation, the initial analysis is that the eligibility requirements for Founders’ Relief are relatively restrictive. To claim this new relief, the founder must have held at least 25% equity in the company when its original trade commenced. The proposals provide that the company must also satisfy turnover and employment conditions and meet demanding growth and innovation tests. The initial analysis therefore is that relatively few businesses currently transitioning to employee ownership are likely to qualify.  

While EO can be seen to work well for businesses of varying sizes and in diverse sectors, many fast-growth businesses have looked to private equity or trade buyers as offering a scalable succession route. EO has tended to attract more established businesses looking to secure a sustainable future. The likely impact of Founders’ Relief on the growth of EOTs should be assessed pragmatically in this context. 

Nevertheless, a headline 10% rate on gains of up to £10m is likely to be an important consideration for founders who do qualify. For those businesses, the key question will be how Founders' Relief interacts with EOT relief and whether the two regimes can work together rather than compete with one another. The consultation doesn’t currently answer that question. 

EMI & employee share ownership

Enterprise Management Incentive (EMI) share options are a useful tool to enable companies to grant equity to employees in a tax advantageous way. Recent changes have significantly widened access to EMI schemes, including by increasing the qualifying company size limits and extending the maximum option term. The Budget goes further by allowing companies transitioning to EOT ownership to continue granting qualifying EMI options and extending the exercise window following a disqualifying event. This is a welcome development that could give companies greater flexibility to use EMI options as part of an EOT transition, potentially allowing them to share the benefits of an EOT exit with key staff even where the transition is already at the planning stage. 

However, for hybrid EOT models where senior employees hold EMI share options alongside the EOT trustee, a number of practical ‘nuts and bolts’ issues around EMI rules have created unhelpful uncertainty. It’s a notable missed opportunity that the Budget failed to address these concerns or look at broader questions around employee share liquidity. The wait therefore goes on for much needed technical clarification from HMRC to better facilitate the use of EMI schemes in employee-owned companies. 

What this means for EOT exits

Tax considerations are only one of the factors that owners look at when choosing employee ownership for their succession plan. Legacy, independence and protecting employees are (and will remain) the key personal and commercial drivers. This year's Budget hasn't changed that. 

Talk to us

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 that 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.