Selling Your Company to an Employee Ownership Trust: The 0% CGT Relief (2026)

Why the EOT relief exists

The Employee Ownership Trust regime, introduced in 2014, is designed to encourage business owners to transition their companies into employee ownership as a succession-planning route — an alternative to a trade sale, private equity exit, or simply winding the business down. To make this route commercially attractive to sellers who might otherwise take a taxable trade sale, the government offers a 0% capital gains tax rate on qualifying disposals, a significant incentive compared with standard CGT rates (or even Business Asset Disposal Relief) on a conventional exit.

The core qualifying conditions

To claim the CGT relief, several conditions must be satisfied at the time of the disposal:

1. The company must be a trading company (or the holding company of a trading group), not an investment business.
2. The EOT must acquire a controlling interest — more than 50% of the ordinary share capital, voting rights, and rights to both distributable profits and assets on a winding up.
3. The number of former owners and other "excluded participators" must not exceed 40% of all employees eligible to benefit under the trust, ensuring genuine broad-based employee ownership rather than a small management clique retaining effective control.
4. The trust must apply its benefits to all eligible employees on the same terms (an "equality requirement"), though reasonable distinctions by factors like length of service, hours worked, or remuneration are permitted.

Worked example

Suppose you own 100% of a trading company worth £2 million, with an original base cost (what you paid or the value when you acquired the shares) of £100,000.

The comparison illustrates why the EOT route has become an increasingly popular succession option for owners of profitable, well-run trading businesses who are willing to hand over control to an employee trust rather than an external buyer.

How the sale is typically funded

Very few companies have £2 million or more of spare cash to fund an outright purchase by the trust. In practice, most EOT sales are structured with a modest upfront cash payment followed by deferred consideration paid from future company profits over a period of years — effectively, the company (via the trust) pays the seller out of the profits the business continues to generate after the sale. This makes the EOT route accessible even to companies without large cash reserves, though it does mean the seller carries some ongoing credit risk on the deferred payments.

Tax-free employee bonuses

Once a company is at least 50% owned by a qualifying EOT, it gains the ability to pay employees (other than certain excluded participators, broadly former owners and connected persons) tax-free bonuses of up to £3,600 per employee per tax year. This is exempt from income tax but remains subject to employer and employee National Insurance, and must be paid on similar terms across the eligible workforce, following the same equality principle that applies to the underlying trust conditions.

Clawback risk

If the qualifying conditions are breached within the specified clawback period following the disposal — broadly, the tax year of the sale and the following tax year — the CGT relief can be withdrawn retrospectively, creating a tax charge on the seller as if the relief had never applied. This is a meaningful risk factor to model into the transaction, and is one of several reasons specialist legal and tax advice is essential when structuring an EOT sale, rather than treating it as a simple template transaction.

Use our capital gains tax calculator to model your potential exposure under a standard sale for comparison, and our corporation tax calculator to understand the company's ongoing tax position as an EOT-owned trading business.