Employee Ownership Explained – Expert Guidance for UK Business Owners
Discover how transitioning to employee ownership can secure your legacy, reward your team, and deliver long-term business continuity.
At EOT.org.uk, we provide clear, independent advice to UK business owners exploring a transition to employee ownership, with a particular focus on the Employee Ownership Trust (EOT) model. Whether you’re planning your exit, preparing for retirement, or simply want to protect the future of your business, employee ownership offers a practical, tax-efficient and values-driven solution.
Why Employee Ownership?
EOT.org.uk
1800+
The number of UK businesses choosing to transition to Employee Ownership Trusts has now exceeded 1,800, with the trend accelerating as more owners seek a stable, tax-efficient exit.
0% CGT
Exit your business through a HMRC-recognised Employee Ownership Trust and legally pay no Capital Gains Tax – a powerful, tax-free succession route for qualifying UK entrepreneurs.
80,000+
Over £30 billion in annual economic contribution and 80,000+ employee-owners – the impact of employee-owned businesses is both substantial and rising across the UK.
5 Key Considerations When Exploring an Employee Ownership Trust (EOT)
Before committing to a transition, every business owner must carefully consider the practical and financial implications. Here are the five critical factors to evaluate:
Business Valuation for EOT Transactions
Determine a fair market value to guide deal structure and tax planning
The starting point for any EOT transaction is a professional, HMRC-compliant business valuation. This valuation sets the sale price to the Employee Ownership Trust, determines the financial feasibility of the deal, and ensures compliance with tax rules. At EOT.org.uk, we can guide you to trusted valuation experts who understand the nuances of the EOT model and provide independent, defensible valuations.
Funding the Sale to the EOT
Understand how the trust will finance the purchase of shares
Most Employee Ownership Trusts are funded through future company profits. This means the EOT pays the former owner over time, typically through an instalment-based repayment structure. It’s essential to model future cash flows, assess affordability, and ensure that the company can continue trading healthily while meeting its financial obligations to the trust and employees.
Legal & Governance Structure of the Trust
Establish a compliant, transparent and functional EOT structure
Setting up an Employee Ownership Trust involves creating a legal trust entity, appointing trustees, and drafting trust deeds and governance documents. The structure must meet HMRC’s EOT requirements and operate in the best interests of employee beneficiaries. Careful trustee selection and clear documentation are essential to avoid disputes and ensure good long-term governance.
Tax Reliefs and Compliance
Maximise tax advantages and avoid HMRC challenges
One of the key attractions of selling to an EOT is the 0% Capital Gains Tax relief on qualifying transactions. However, strict rules apply. The seller must dispose of a controlling interest (51% or more of the shares), and the company must meet trading, independence, and UK-based criteria. We help ensure you’re fully informed and working within HMRC's tax framework.