Written by Co-Founder and Head of EO, Barry Horner
Yesterday’s Autumn Budget brought a seismic shift to the Employee Ownership Trust (EOT) landscape. The Capital Gains Tax (CGT) relief on disposal, being reduced from 100% to 50%.
Initially, I will admit, as I first heard the news at the Employee Ownership Association (EOA) Conference in Telford, it felt like a blow. Any reduction in a significant incentive for business owners considering an EOT transition can feel like a setback for a movement we all champion. The EOT model is, after all, a powerful force for good, securing jobs and driving productivity.
The OBR’s Revealing Commentary
But then, I have reflected on the commentary from the Office for Budget Responsibility (OBR). They are factoring in an assumption that fewer owners will now use EOTs purely as a tax play. And after considering it, I have concluded that this change could be a good thing for the long-term health and integrity of employee ownership.
The original goal of the EOT legislation was never simply to create a tax haven. It was designed to encourage genuine employee empowerment, drive productivity, and secure sustainable business succession and the fact that the tax breaks are being reduced is evidence of the success of the sector.
Let’s be honest. The 100% CGT relief was a massive lure. It created a situation of ‘tax arbitrage’ where an EOT sale was the financially optimum exit, often overshadowing any genuine commitment to the model’s core cultural and structural benefits.
The sheer cost of the scheme – forecast by the government to be around £2 billion, or 20 times the original costings – clearly demonstrated that the relief was being heavily utilised, sometimes to stretch the spirit of the law. The OBR’s forecast rightly acknowledges that curbing this aggressive tax planning is essential.
Now, with a 50% relief (which still offers a significant advantage over a trade sale), the decision to transition to an EOT requires a more purposeful commitment. It separates the genuinely committed from those purely seeking the 100% tax-free exit.
If the exit was for the wrong reasons, where the sole driver was tax avoidance, the owner will likely pivot to another option – Good.
If the planned exit was for the right reasons, where the business owner is truly committed to the principles of employee empowerment and sustainable legacy, the remaining incentive is still substantial enough to make the transition viable.
This is what you might call a ‘purification’ of the sector. By reducing the government’s fiscal exposure and mitigating the potential for ‘abuse,’ we are protecting the EOT model from more drastic future reforms or, worse, outright abolition.
Greater long-term certainty for businesses that genuinely adopt the model is far more valuable than short-term 100% tax relief that risked the entire scheme’s reputation.
As we were helpfully reminded by the EOA’s CEO James de le Vingne yesterday in Telford, our focus, and the focus of every new EOT, must be driven by the ethos of employee ownership – the commitment to sharing success, improving culture, and building a stronger business – as much as, if not more than, the economics of the sale.
Maybe in the long run, this change represents a win for integrity, a win for the sector’s longevity, and ultimately, a win for all of the employees who deserve genuine ownership.
This article is for information only and does not constitute financial advice. Tax treatment depends on individual circumstances and may change in future. Please seek professional advice before making decisions.