Employee Ownership Trusts: Rethinking business succession

June 16, 2026

Employee Ownership Trusts: Rethinking business succession

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By Mike Raymond

Read time: 4 minutes

Friday 19 June 2026 marks Employee Ownership Day, this is an annual campaign run by the Employee Ownership Association (EOA) to celebrate businesses that have moved into employee ownership structures, and to raise awareness and encourage others to do the same.

The sector has grown steadily over the past decade, and with the EOA‘s UK Growth Strategy targeting 7,500 employee-owned businesses by 2030, it is a model firmly in the mainstream conversation around business succession.

A key component of most of these transitions is the Employee Ownership Trust (EOT). For business owners thinking about an eventual exit, and for employees curious about what it might mean for them, it is useful to understand what an EOT actually is and how it works in practice.

Our corporate lawyer, Mike, summarises the key features of Employee Ownership Trusts and the practical considerations for both business owners and employees.

What is an EOT?

An EOT is a particular type of trust, introduced by the Government in 2014, designed to hold a controlling stake in a company on behalf of all its employees. Crucially, an EOT does not give employees direct, individual shareholdings. Instead, the trust becomes the shareholder, holding the shares collectively for the benefit of the employees as a whole. Employees don’t need to buy in, and they don’t hold shares that can be sold or transferred individually. The benefit comes through the trust structure rather than through a personal shareholding.

How does an EOT sale work?

In broad terms, a sale to an EOT involves three key components:

1. Setting up the trust – the trust is set up by the company, with a corporate trustee usually appointed as the trustee. The trustee board typically includes a mix of employee representatives, independent trustees and former owners and their main role is to ensure that the interests of the employees are safeguarded.

2. Sale of the shares – the existing shareholders sell a controlling interest in the company to the EOT. To qualify for the EOT tax reliefs, the trust must acquire more than 50% of the company’s ordinary share capital. The purchase price is based on an independent valuation to ensure that the transaction takes place at a fair market value.

3. Funding of the shares – it is common for an EOT transaction to be funded partly from existing cash reserves of the company, with the balance of the consideration deferred and paid from future profits. In these circumstances, the company provides funds to the EOT, which are then used by the EOT to satisfy the purchase consideration payable to the sellers.

Why have EOTs become so popular?

There are a number of reasons why EOTs have become an increasingly attractive option for business owners considering succession. The main advantages include:

• Tax efficiency. Where the qualifying conditions are met, a sale to an EOT can attract significant Capital Gains Tax relief. It’s worth noting that this relief has changed: for deals completed before 26 November 2025, sellers could potentially benefit from a full 100% CGT exemption. For those on or after that date, the relief has been reduced to 50%, giving an effective CGT rate of around 12% on the proceeds, still a notably more favourable outcome compared with the rates that would otherwise apply.

• A cleaner exit process. Unlike a trade sale or private equity deal, a sale to an EOT can often proceed at or around full market value without the same level of external negotiation, extensive due diligence or earn-out complexity that those routes typically involve.

• Continuity and culture. Many owners are drawn to EOTs because the business, and the culture they have built, remains intact. The existing management team can stay in place, and employees continue in their roles with a meaningful stake in the business’s future.

• A solution where no obvious successor exists. For businesses where a family succession, management buyout, or third-party sale isn’t feasible, an EOT can provide a workable and orderly route to succession.

What does it mean for employees?

For the workforce, the most tangible benefit is usually a financial one: companies controlled by an EOT can pay employees tax-free bonuses of up to £3,600 per person per year. These bonuses have to be offered on the same terms to all eligible employees, though the amounts can vary based on factors like length of service, hours worked or remuneration.

There’s also the benefit around employee engagement. Many businesses that have moved to employee ownership report improvements in staff retention, motivation and overall performance, on the basis that people tend to feel differently about a business they have a stake in, even an indirect one, compared to one they simply work for. Employees will ultimately have greater influence over the future direction of their company.

Things to bear in mind

An EOT isn’t right for every business, and getting there involves meeting a fairly detailed set of qualifying conditions covering matters such as the company’s trading status, the composition of the trustees, and limits on how much control former shareholders and connected employees can retain after the sale. Getting any of these wrong can mean the tax reliefs don’t apply, or are later withdrawn if conditions are breached within a few years of the sale.

For business owners weighing up their options for succession, an EOT is one of several routes that are worth considering, alongside a trade sale, management buyout or external investment. When it comes to succession planning, the right answer depends heavily on the specifics of the business and what the owners are trying to achieve.

If you are considering an Employee Ownership Trust as part of your succession planning, or would like to explore the options available for your business, our Corporate team would be happy to help. Get in touch via our contact form, email hello@darwingray.com, or call 02920 829 100 to discuss how we can support you or your business.