Are Employee Ownership Trusts a good business succession strategy?

There are many reasons why a person would think about leaving behind the business they have built and one of these is challenging economic conditions.

It could also be that you are reaching the end of your professional life or are ready to start fresh with a new business venture.

While there are many business succession strategies available, Employee Ownership Trusts (EOTs) remain quite popular and it is worth understanding what they are and how to utilise them effectively.

What is an Employee Ownership Trust?

Rather than selling your business to an external buyer or handing it directly to an individual, an EOT is a way of democratising the control of the business.

An EOT is a trust, operating on behalf of the employees of a company, that acquires shares in a business, sometimes resulting in employees having a controlling interest in the company.

Many business owners have come to accept that the people they employ are the key driving force behind a business’s success.

This is often due to the skilled approach by HR teams and managers to select and cultivate talent, ensuring that people are able to achieve their full potential while under your employ.

Now that your time as owner is coming to an end, it might make sense to reward your team with the business itself.

The logic is that the people who work in your business every day both understand the operations more deeply than an outsider and have a vested interest in the continued success of the company.

The extent to which an EOT controls the business is the same as any other buyer and can be determined by your specific business succession strategy.

Are Employee Ownership Trusts effective for business succession?

The 2025 Autumn Budget reduced the tax efficiency of EOTs by slashing the Capital Gains Tax relief from 100 per cent to 50 per cent.

This has made EOTs slightly less appealing than they once were, but a lot of the core appeals remain unaffected by the change.

Aware of their increasing popularity, the Government became cautious that EOTs were open to abuse, with businesses potentially being overvalued in order to make the most of the relief.

This followed reports from HMRC that the cost of CGT relief had increased significantly over the years, reaching £600 million in 2021/22.

Further forecasts projected a rise to more than 20 times the original cost, to £2 billion by 2028–29, if reforms were not implemented.

Even so, much of the value of an EOT is in the ability to shape how the future of the business works and make your legacy one of uplifting your employees.

EOTs are worth considering when the time has come to exit your business, but they are not the only business succession strategy available.

Our team can help you assess your business and find the most effective succession plan for you that will preserve the value of your business.