What Is an Employee Ownership Trust?

7th July 2025

An Employee Ownership Trust (EOT) is a legal structure whereby a company's shares are held in trust on behalf of all employees.

When a business owner sells a controlling stake (at least 51%) to the EOT, employees become indirect beneficiaries of the trust and share in the company's success, while the original owner often benefits from favourable tax treatment.

Key Benefits
Enhanced motivation and engagement Employees feel a sense of ownership, driving productivity and innovation.

Job security and stability EOT-owned firms often prioritise long-term sustainability, reducing the likelihood of layoffs or major restructurings.

Smooth succession planning Business owners can exit without the upheaval of a third-party sale, preserving company culture and values.

Substantial tax relief Sellers are exempt from Capital Gains Tax on the sale; employees can receive up to £3,600 of annual bonuses tax-free.

Potential Drawbacks
Complexity and setup costs Establishing an EOT requires legal, financial and valuation advice, extending timelines and incurring professional fees.

Funding challenges Financing the purchase—often through deferred payments from future profits—can strain cash flow and limit reinvestment capacity.

Valuation disputes Determining a fair market value for shares may lead to disagreements and can affect employee buy-in if the price feels disconnected from perceived value.

Control and liquidity limits Former owners lose direct control, and employees holding beneficial interests may face challenges if they wish to exit or realise value independently.

Administrative burden Ongoing trust governance and compliance with HMRC requirements demand time and resources, potentially diverting focus from core operations.

Is an EOT Right for Your Business?
Employee Ownership Trusts can be an excellent solution for businesses seeking a legacy-preserving exit, enhanced employee engagement, and tax-efficient transfer.

However, they demand careful planning, adequate financing and a commitment to ongoing trust governance. A thorough assessment of your company's financial health, culture and long-term goals is essential before proceeding.

Benefits to Owners of Selling to an Employee Ownership Trust

Capital Gains Tax Relief
Selling a majority stake (at least 51 percent) to an EOT can be entirely exempt from Capital Gains Tax. This delivers an immediate, tax-efficient exit for the owner without the drag of a hefty CGT bill.

Preservation of Legacy and Culture
Transitioning to an EOT keeps the business in trusted hands. Owners ensure the company's founding values, long-term vision, and reputation remain intact rather than risk cultural shifts under external buyers.

Smooth Succession and Liquidity
Owners avoid the uncertainty and delay of trading-sale negotiations.

Deferred payment structures and vendor financing allow sellers to receive full market value over time, aligned with the company's cash flow.

Enhanced Employee Engagement and Retention
When employees know they're beneficiaries of the trust, motivation and loyalty tend to rise. A more committed workforce often translates into better productivity, innovation, and lower staff turnover.

Business Stability and Sustainability
An EOT-owned business typically prioritises long-term stewardship over short-term cost cutting. This can safeguard jobs, protect customer relationships, and maintain steady performance post-exit.

Reputation and Community Impact
Owners who transfer to an EOT signal a commitment to inclusive prosperity. This can boost brand standing, attract talent, and resonate positively with customers, suppliers, and local communities.

How an Employee Ownership Trust Pays the Seller for Their Shares

When a business owner sells a controlling stake (at least 51%) to an Employee Ownership Trust (EOT), the trust itself has no funds or trading income. Instead, the company and/or external lenders fund the purchase, and the EOT repays the owner over time.

1. Share Sale and Valuation
The owner sells shares at full market value, determined by an independent valuation.

At least 51% of share capital transfers into the EOT to qualify for tax reliefs.

2. Funding Mechanisms
Company Profit Contributions The operating company makes annual or periodic contributions from future profits into the EOT.

Debt Financing The EOT may borrow from a bank or other lender, often secured by a company guarantee, to provide upfront funds.

Hybrid Approach A small portion of the purchase price can be paid on completion, with the balance deferred and paid from later profit contributions.

3. Repayment to the Seller
Contributions and loan repayments flow from the company to the EOT.

The EOT applies these funds to settle the outstanding purchase price plus any financing costs.

Payments typically span several years, aligning cash outflows with the company's profitability3.

4. Key Points for Sellers
Tax-efficient exit: Capital Gains Tax exemption on qualifying transfers.

Cashflow alignment: Deferring most of the consideration ensures the business isn't over-leveraged.

Risk sharing: Deferred payments tie the owner's proceeds to ongoing company performance.

Number Employee Ownership Trusts
As of the latest published data, there are 576 Employee Ownership Trusts (EOTs) operating in the UK (June 2021).

Across those 576 trusts:

They collectively cover 1,300 employee-owned businesses nationwide.

Around 181,213 staff members participate as beneficiaries of those trusts.

Since mid-2021, the EOT market has continued to grow—2022 saw nearly 500 new EOTs established in the year to September, suggesting the current total is likely north of 600 trusts today.

For more information see
https://www.pwc.co.uk/services/tax/employee-ownership-trusts.html

https://gateleyplc.com/insight/article/a-practical-guide-to-employee-ownership-trusts/

https://www.saffery.com/insights/publications/employee-ownership-trust/