For founders weighing succession options, the Autumn Budget 2025 delivered a headline change: the full CGT exemption for sales to an Employee Ownership Trust (EOT) has been replaced with a 50% relief mechanism for disposals made on or after 26 November 2025.
The reform is significant but the EOT route remains strategically, commercially, and tax-efficient for many founder led businesses. The key is understanding how the new rules interact with shareholder objectives, valuation cycles, and long-term wealth planning.
What the Reform Means
HMRC’s update to Section 236H TCGA 1992 means:
- 50% of the qualifying gain remains tax-free.
- The other 50% is taxed at the prevailing CGT rate (24% post-April 2026), giving an effective 12% rate.
- BADR and Investors’ Relief cannot be claimed where EOT relief is used.
- The untaxed half of the gain is held over and reduces the trustees’ acquisition base, affecting future disposals.
CGT recent rate changes
The impact of the 2025 reform becomes clearer when viewed alongside recent movements in Capital Gains Tax rates and the changes to Business Asset Disposal Relief. The tightening of reliefs and the steady rise in headline rates mean that the relative position of Employee Ownership Trust transactions improves over time, even with the new 50 % exemption.
The table below sets out the key dates and rates so that founders and advisers can compare the changing landscape and understand how the effective rate on Employee Ownership Trust sales now sits within the wider Capital Gains Tax system.
| Main rate of CGT | BADR Qualifying | EOT exemption | |
| 30 October 2024 | 20% | 10% on first £1m 20% thereafter |
0% |
| 6 April 2025 | 24% | 10% on first £1m 24% thereafter |
0% |
| 26 November 2025 | 24% | 14% on first £1m 24% thereafter |
Effective rate 12% |
| 6 April 2026 | 24% | 18% on first £1m 24% thereafter |
Effective rate 12% |
Why EOTs Still Work for Founder‑Led Businesses
- Strong valuations combined with rising tax rates create a narrowing window for tax‑efficient exits.
- EOTs avoid earn‑outs, integration risk, and buyer‑driven price reductions, offering founders increased certainty.
- Founders can remain involved post‑completion, retaining influence where appropriate.
- The tax-free employee bonus of £3,600 per year enhances retention and performance.
- EOT structures integrate well with wider family wealth planning, including trust strategies and refinancing options.
When an EOT May Not Be Suitable
- Capital-intensive businesses seeking external investment
- Founders requiring a full cash exit immediately
- Shareholder disputes or governance obstacles
- Groups with complex intragroup structures
- Businesses not aligned with employee ownership principles
What Founders Should Consider Now
- Recalculate personal exit proceeds under the new rules.
- Model long‑term implications of the held‑over gain.
- Assess valuation cycles and whether acceleration is beneficial.
- Compare EOT outcomes with BADR‑qualifying sales.
- Review trustee governance and board structure.
Sedulo’s View
Despite the reforms, EOTs remain one of the most tax‑efficient and strategically aligned exit routes for founder‑led and high‑net‑worth businesses. Lower tax rates, continuity, cultural fit, and improved employee engagement all contribute to making EOTs a compelling option.
For founders seeking stability, legacy preservation, and a smooth transition, an EOT can still be the optimal solution.
If you would like tailored modelling or guidance on the changes, Sedulo Tax Advisory is available to support your decision-making process.
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