29.7.25 | Tax

For many business owners, the thought of selling up triggers two emotions: relief at reaching the finish line, and dread about how much HMRC will take off the top.

But here, Andrew Diver, Head of Tax at Beatons accountancy firm, explains that there’s an increasingly popular route that offers a tax-efficient, employee-friendly exit: the Employee Ownership Trust (EOT).

Inspired by the John Lewis model, the EOT was introduced in the Finance Act 2014 to encourage business owners to pass their companies into employee hands.

The result? Tax incentives for the seller, motivated employees, and a legacy that keeps your business thriving.

What is it?

Think of it as passing the baton – but not to a single buyer, instead, to a trust that holds the business for the benefit of all employees.

The trust holds a controlling interest (minimum 50% of shares) but does not confer direct ownership on employees.

This means employees collectively hold a controlling interest, but there is no need to change your management structure unless you choose to.

What’s in it for you?

Quite a lot actually.

Primarily, there is Zero Capital Gains Tax when selling a controlling interest to an EOT. It also gives you the ability to pay tax-free annual bonuses of up to £3,600 per employee.

What’s more, you can retain continuity of management and protect your company culture.

To qualify, your business must:

• Be a trading company or principal company of a trading group
• Ensure all employees benefit equally (excluding new starters under 12 months or previous 5%+ shareholders)
• Have the trust hold at least 50% of the share capital at all times

Key employees can be issued shares directly, provided the trust still owns at least 50% of the ordinary shares in the company. Those with direct shareholdings will probably not be able to receive dividends while the company repays the original shareholder, which will be the company’s priority.

Planning ahead

Before you embark on this step, remember that valuations are key.

Trustees must ensure the price paid doesn’t exceed market value and may consider third-party funding for quicker settlement.

The current directors often stay in place, reporting to trustees acting in the employees’ best interests.

Things to think through

An EOT can energise your workforce, adding extra incentive to perform well. After all, everyone benefits if they do.

But a strong management team at exit is key, together with good governance and clear communication.

If the company stops meeting EOT rules (e.g. ceases trading or doesn’t treat employees equally), HMRC could claw back tax benefits. And while sellers aren’t personally liable, trustees could be.

A final word

An Employee Ownership Trust isn’t right for everyone, but for those looking to exit with minimal tax and maximum legacy, it’s a powerful option.

At Beatons, we can guide you through every step – from initial valuations to trustee setup – to ensure a smooth, tax-efficient transition.

Get in touch to arrange a chat.