In the much-anticipated budget on the 26^th November 2025, the Chancellor confirmed the government’s support for Employee Owned models of business, which she noted promote fairness, gives employees a stake in the businesses they work for and drives productivity and growth.  However, it was also noted that the tax relief, which sales to an Employee Ownership Trust (EOT) attract now costs the treasury much more than anticipated when introduced in 2014.  On these grounds, the 100% relief on Capital Gains Tax (CGT) has been reduced to 50%, coming into effect on the day of the budget.

In practical terms, with CGT chargeable on 50% of the gain and no Business Asset Disposal Relief (BADR) to be applied, this means that most sellers who sell to an EOT will be paying 12% tax overall on the sale of their shares.  It’s worth highlighting this remains a lower rate of tax than BADR, which only applies to the first £1m of gains and currently sits at 14%, rising to 18% in April 2026.  It is obviously also significantly lower than the main rate of CGT of 24%, so there is still a meaningful tax incentive for selling shares to an EOT.

What we know from our work of helping businesses become employee owned, is that the tax relief is very rarely the main driver behind a move to employee ownership.  Business owners choose an employee owned model for many reasons: for fairness, independence for the long-term, protection of legacy, culture and/or values, rewarding their employees for long service, and giving the people who have helped them build the business the opportunity to take it forward.   Employee ownership will continue to be the best option for these business owners.

Research has also shown that employee-owned businesses are 8–12% more productive than non-EO businesses, employees with a stake in the business feel more motivated and committed leading to enhanced employee engagement and employees report higher job satisfaction. This evidence and being employee owned ourselves, we understand the immensely positive impact that this model of ownership has on a business and its employees.

However, what the tax relief did do, was to enable these transitions of ownership, which rely on the business to fund the purchase of shares from future profits.  The reduced tax burden allowed payments to be made on a deferred basis and owners to be pragmatic in terms of valuation for their shares.   It is our hope that the changes to the tax relief do not compromise the relief’s ability to function as an enabler: allowing business owners to structure a sale of their shares that works for both themselves, and the business.  We are already speaking with our clients about the best ways of approaching this from their perspective.

For businesses who are currently considering a move to employee ownership and may be unsettled by the changes, we would encourage you to contact us.  From our experience of transitioning over 300 business to employee ownership, we have experience of the many ways that purchase, and repayment can be structured and would be happy to have a conversation about making this work for you.