Employee Ownership Trusts soar as shareholders seek to maximise tax benefits
Published on 15th September 2025
From tax benefits to improved employee engagement, transitioning to an Employee Ownership Trust (EOT) is increasingly appealing to business owners.
The EOT model has grown by an enormous 1,640% in total business count in the decade since the legislation was introduced, with 560 transitions to EOTs in 2024 alone. There are currently around 2,470 employee-owned businesses, collectively employing around 358,000 people. (Data from Employee Ownership Association and WREOC, UK EO Business Register, May 2025). Recent increases to the Capital Gains Tax (CGT) rate are likely to see selling businesses to an EOT become an even more popular option for shareholders looking at exit strategies.
Perhaps the most famous employee-owned business is the John Lewis Partnership, but it’s a model chosen by a number of other household names, from high street retailer Lush to award-winning animation studio Aardman, the creators of Wallace & Gromit. The shareholders of the largest toy retailer in the UK, the Entertainer, have also recently announced their intention to transition to an EOT before the end of the year. But what does this mean in practice – and how can you know if this is the best structure for your business?
What is an Employee Ownership Trust and what are its benefits?
An EOT is a structure that gives the majority ownership of a business to staff, yielding multiple financial and cultural benefits:
Tax Advantages
- No Capital Gains Tax for the shareholders on the sale of shares to an EOT.
- Bonuses up to £3,600 per employee are exempt from income tax.
- No Inheritance Tax liability for selling shareholders.
Improved Employee Engagement
- Boosts staff incentivisation and retain company culture.
- Employees effectively co-own the company, leading to increased investment in its success.
Preservation of Company Values
- Founders can retain a minority interest and directorships to ensure the brand, culture, and values are preserved.
- Continuity is maintained as no third-party buyer disrupts operations.
The Autumn Budget last year introduced a number of changes to ensure EOTs remained focused on encouraging employee ownership and to prevent opportunities for abuse. These include rules around UK residency for trustees and restricting former owners from retaining control of the company by controlling the EOT itself. The period during which the company must meet qualifying conditions for CGT relief has been extended (from one tax year to four), while other changes relate to valuation requirements and tax relief for distributions to EOTs.
“As well as the tax advantages, there are many reasons to sell to an EOT. Shareholders can retain shares in the business (as long as this is less than 50%) and/or stay on as directors to ensure the business's ethos and culture remains. Not all shareholders need to sell, nor do they need to sell pro-rata. It’s also generally a much lighter sales process.”
How Osborne Clarke can help
As with any transaction, it’s important to be aware of the risks and to ensure the model is the right choice for your business. Given the unique nature of the EOT structure and the rules relating to how and when onward sales can occur, it’s vital that if you are planning such a sale – even some distance in the future – you seek professional advice.
At Osborne Clarke, our specialist team, led by partners Michael Carter and Simon Smith, advises businesses across the EOT lifecycle. Having assisted over 40 companies with their EOTs, advising both on the transition to EOT and onward sales, our experts are well placed to help you navigate the process.
Examples of our work include advising:
- The Entertainer on its transition to an EOT.
- Power Electrics on its transition to an EOT.
- Big Potato on its transition to an EOT and then subsequently a sale to Mobeus Private Equity.
- Brands2Life on its transition to an EOT and then subsequently a sale to PE backed Paritee Holding AS.
- Globalview on its transition to an EOT and then subsequently a sale to FRP Advisory Group plc.
- RocketMill on its sale to US agency group PMG.
- Noe & Associates on the sale to Phoenix Equity Partners.
“An EOT can provide a tax beneficial way for shareholders to realise value, but a common pitfall for founders is underestimating the careful planning and due diligence required when transitioning or negotiating an onward sale. Specialist legal advice is required to navigate tax consequences, structuring issues and trustee considerations. Our team is deeply familiar with the EOT process and can advise on the complexities and potential risks of selling to an EOT, and the benefits it can bring for a company and its employees.”
For an efficient exit that preserves what makes your business special, an EOT may be the right choice. Reach out to our experts to have a conversation about how our multidisciplinary team can help.
Our next webinar titled 'Employee Ownership Trusts: Tax‑Smart Exits, Culture Gains — Is It Right for Your Business?' will take place on the 21 October at 10am. Register to attend here.
