The UK government, as part of measures to collect more tax revenue, reduced tax reliefs on what are called employee ownership trusts. Business founders might jump to the conclusion that EOTs are no longer a viable exit option. Not so fast, writes the author.

The following guest article, examining a feature of the UK Autumn Budget, examines the cut in the tax reliefs on employment benefit trusts, prompting concerns among business founders considering how to handle transfer and exit. The author, Giorgio Pizzetti (pictured below), associate at Hunters Law, argues that EOTs continue to have value for founders contemplating succession. 

As ever, the views of guest writers aren’t necessarily shared by the editors, but we are always pleased to share valuable insights and invite responses. Please enter the conversation, and email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com
 

Giorgio Pizzetti

The UK’s entrepreneurial community has had little time to digest the implications of Labour’s latest budget before the headlines began to bite. Among the most talked-about measures is halving capital gains tax (CGT) relief on sales to Employee Ownership Trusts (EOTs), a move that has sparked concern among founders contemplating succession. For many, the instinctive reaction is to strike EOTs off the list of viable exit options. That would be a mistake.

This change is significant, yes. It is not, however, a death sentence for employee ownership. In fact, EOTs remain one of the most compelling succession routes available, both financially and strategically.

What has and has not changed
Introduced in 2014, EOTs were designed to encourage businesses to adopt employee ownership, a model famously associated with John Lewis. Under this structure, a trust acquires a controlling interest in the company for the benefit of all employees. The directors continue to manage day-to-day operations, while trustees safeguard the long-term interests of the workforce.

Until now, the headline incentive for founders was clear: 100 per cent CGT relief on qualifying sales to an EOT. Labour’s decision to cut that relief to 50 per cent is a material shift. For entrepreneurs who have spent years building their businesses, the prospect of a tax-free exit was a powerful motivator. Losing half of that advantage inevitably changes the arithmetic.

Yet context matters. Even at 50 per cent, CGT relief on EOT transactions remains highly attractive compared with most other exit routes. A third-party sale, for example, typically attracts CGT at the full rate, alongside the uncertainty and cultural upheaval that often accompany such deals. Viewed through this lens, EOTs are not obsolete; they are simply less generous than before.

Beyond tax: Preserving legacy and independence
For many founders, succession planning is about more than maximising proceeds. It is about safeguarding the values, culture, and independence that define their business. Selling to a competitor or private equity investor often means relinquishing control and accepting strategic changes that may jar with the founder’s vision.

EOTs offer a different path. They allow founders to exit while ensuring continuity of ethos and operational stability. Employees gain a stake in the company’s success, fostering engagement and loyalty. For founders who care about legacy, this is a powerful proposition that transcends the purely financial.

The cultural and operational upside
The benefits of employee ownership extend well beyond the transaction itself. When staff feel invested in the business, retention improves, productivity rises, and innovation flourishes. These cultural dividends compound over time, strengthening the enterprise long after the founder has stepped back.

In an environment where talent retention is a strategic priority, this people-centric model can be a decisive competitive advantage. It is not just good governance; it is good business.

Other tax advantages still stand
While the CGT cut has dominated headlines, other tax perks remain intact. Employees can continue to receive annual bonuses of up to £3,600 ($4,817) free of income tax, a meaningful benefit that reinforces engagement. Inheritance tax exemptions also survive, offering further incentives for founders to consider this route.

Taken together, these advantages underscore the resilience of the EOT model. Even in a less generous CGT environment, the overall package remains compelling.

A government-backed, founder-friendly model
Despite the recalibration, EOTs retain their status as a government-endorsed succession solution that balances financial efficiency with cultural continuity. The qualifying conditions are clear, the structure is robust, and the process, while requiring careful planning, offers a level of certainty and control that few alternatives can match.

Abandoning EOTs would not only deprive founders of these benefits; it would also deny employees the long-term rewards of ownership, from profit-sharing to enhanced job security. Ironically, a measure aimed at taxing the wealthy may end up hurting the very workers Labour seeks to champion.

Don’t write off EOTs
Labour’s CGT cut is undeniably a blow to entrepreneurs. But it is not the end of the road for employee ownership. For founders who value legacy, continuity, and employee engagement, EOTs remain a smart, forward-thinking choice. The numbers may have shifted, but the fundamentals are as strong as ever.

Succession planning is never one-size-fits-all. EOTs require careful structuring and ongoing governance. With the right advice, they continue to offer a rare combination of financial, cultural, and strategic advantages which should not be overlooked in the rush to judgment.