Employee ownership trust (a sale, not a raise)
Owners sell a controlling stake to a trust that holds it for all employees, usually paid over time from the company's profits. This is a way for owners to sell, not a way for the business to raise money.
- No security
How it works
This does not bring new money into the business. It changes who owns it, and the company usually pays for the sale out of future profits.
An employee ownership trust (EOT) buys a controlling interest in a trading company and holds it for the benefit of all employees on the same terms. Typically:
- The trust agrees to buy the owners' shares at no more than market value.
- The company pays money into the trust over several years, and the trust uses it to pay the former owners.
- Employees benefit, for example through bonuses.
Tax: sellers have been able to claim Capital Gains Tax relief on the sale. For disposals on or after 26 November 2025, the relief is 50%, down from 100%. Half the gain is taxed now, and the other half is held over until the trust later sells. Since 30 October 2024, the trustees must be UK resident, former owners and people connected with them cannot control the trust, and the trustees must take reasonable steps to make sure they pay no more than market value.
Companies owned by an EOT can pay each employee bonuses of up to £3,600 a year free of income tax, if all employees can take part on equal terms.
Upsides and downsides
Upsides
- Owners can sell without finding an outside buyer
- Keeps the business independent and rewards employees
- Capital Gains Tax relief on half the gain, and tax-free bonuses for staff
Downsides
- Does not raise money for the business. Profits go to paying the former owners
- Sellers are usually paid over several years, not all at once
- Tax relief was cut from 100% to 50% for sales from 26 November 2025
Risks
- The company cannot afford the payments if profits fall
- Sellers not being paid in full if the business struggles
- Weak leadership after the founders leave
What it costs
- How it is priced
- The company funds the purchase price from its profits, paid to the former owners over time
- Costs that are easy to miss
- Valuation, legal and tax advice for the sale
- Company profits paid to the trust for years instead of being reinvested
- Capital Gains Tax on half the sellers' gain since 26 November 2025
The value of the shares sold, usually paid to the sellers in instalments from the company's profits.
Does it fit?
Could fit when
- Owners want to sell and would like the business to stay independent and owned for its employees
- The business is profitable and established
Unlikely to fit when
- Owners are not selling (an employee ownership trust does not raise new money)
- You also need new money for growth, which an employee ownership trust does not raise
- The business is not profitable enough to pay for the shares over time
Who can use it
- Business types: Private limited company, Public limited company
- Usually needs a profitable business
- The company must be a trading company or the holding company of a trading group
- The trust must hold a controlling interest and benefit all employees on the same terms
- Trustees must be UK resident, and former owners must not control the trust
Am I ready?
What a provider is likely to ask for. Tick what you have. Your ticks stay in this browser and nothing is stored. Checklist for all private equity investment
0%
0 of 4 ticked
- Independent valuation
- Profit forecast
- Trustees chosen
Regulation and protections
Not a financial product. The tax reliefs are set by the Taxation of Chargeable Gains Act 1992 and the Income Tax (Earnings and Pensions) Act 2003, and administered by HMRC.
Types of provider: Solicitors and tax advisers specialising in employee ownership; Independent trustees.
Also consider
Sources
- GOV.UK: Capital Gains Tax: Employee Ownership Trusts relief reduction · checked 7 October 2026
- GOV.UK: Taxation of Employee Ownership Trusts and Employee Benefit Trusts · checked 7 October 2026
- HMRC Employment Income Manual EIM03050: Employee Ownership Trusts · checked 7 October 2026
- HMRC Capital Gains Manual CG67801: employee-ownership trusts · checked 7 October 2026