Selling to your employees: how employee ownership trusts work in 2026

Update: the Budget on 28 October 2026 confirmed this limit will fall to £500,000 for disposals on or after 6 April 2027. Read our Budget breakdown.

Selling to your employees through an employee ownership trust (EOT) has become one of the most talked-about exit routes for UK owners. It keeps the business independent, rewards the team that helped build it, and lets you choose your successor. But the tax rules have changed twice in two years, and a lot of what’s written about EOTs online is now out of date.

Here’s how it works today.

What an EOT is

An employee ownership trust is a trust that holds a controlling stake in a company on behalf of all its employees. You sell more than half of your shares to the trust, and the business becomes employee-owned. Employees don’t usually buy shares themselves or put in any money; the trust holds the shares for them.

Most owners stay involved for a period after the sale, often as a director or employee on normal commercial terms, while the business pays them for their shares.

How the money works

This is the part that surprises most owners. The trust rarely has money of its own, so the price is usually paid out of the company’s future profits over several years. Typically:

An independent valuation sets the market value of the business. The trust agrees to buy a controlling stake at that value. Part of the price may be paid on day one, from cash in the business or a bank loan. The rest is deferred, paid to you over several years as the company makes profits and contributes them to the trust.

So an EOT sale is rarely a single large payment. If the business struggles after the sale, the deferred payments can slow down or stop. Your financial outcome depends on the team you leave behind continuing to perform.

What changed in November 2025

Until 26 November 2025, selling to an EOT came with a 100% exemption from capital gains tax: owners paid no CGT at all on qualifying sales. That was a major reason for the route’s popularity.

For sales on or after 26 November 2025, that exemption was cut to 50%. Half of your gain is now taxable in the normal way, and the other half is held over, effectively passing to the trust and only coming into charge if the trust later sells the company.

For a higher-rate taxpayer paying 24% on the taxable half, that works out at an effective rate of around 12% on the whole gain. That’s still lower than a straightforward trade sale, but the gap is much narrower than it was.

Because the price is usually paid over several years while the tax is due much sooner, owners may need to apply to HMRC to pay the tax by instalments. The Chartered Institute of Taxation has said that process can be slow and cumbersome, and has called for it to be modernised so owners get certainty before they sell.

The conditions you have to meet

To qualify for the relief, the main conditions are:

Trading company. The company must be a trading company or the parent of a trading group. Property investment businesses don’t qualify. Controlling interest. The trust must acquire more than 50% of the shares, votes and rights to profits and assets. All employees benefit. The trust must benefit all eligible employees on the same terms, not a chosen few. No owner control. Since October 2024, former owners and people connected to them must make up fewer than half of the trustees, and the trustees must be UK resident. Market value. The trustees must take reasonable steps to make sure they don’t pay more than market value, and that any interest on deferred payments is at a commercial rate. Clawback risk. If certain events happen within roughly four years after the end of the tax year of the sale, such as the trust selling the company or losing control, the relief can be withdrawn. Benefits for employees and the business

Once the business is employee-owned, it can pay employees tax-free bonuses of up to £3,600 a year each (though National Insurance still applies). The transfer of shares into the trust doesn’t trigger inheritance tax. Many employee-owned businesses also report stronger staff retention and engagement, because the team has a stake in the result.

Is an EOT right for you?

An EOT tends to suit owners who:

want the business to stay independent and keep its name, culture and people have a capable management team ready to run it without them are comfortable being paid over several years rather than up front run a consistently profitable business that can fund the deferred payments

It’s usually a poorer fit if you need a large cash sum on day one, if the business relies heavily on you personally, or if a trade buyer would pay a significantly higher price.

Before you decide

Compare an EOT with your other options on a like-for-like basis: the headline price, how much you receive up front, how long the rest takes to arrive, the risk of it not arriving, and the tax at each stage. A trade sale at a higher price can leave you better off even after tax, while an EOT can win if continuity and certainty of legacy matter most to you.

Take advice from a specialist before committing, and get an independent valuation. With the Budget due on 28 October 2026, also check whether anything announced affects these rules.

Read more: What is my business worth? How buyers value a UK company

Exit Index provides general information, not financial, legal or tax advice. Speak to a qualified adviser about your own circumstances.