Calculate the tax benefits of selling your business to an Employee Ownership Trust. Find CGT-free sale proceeds, income tax savings, and EOT bonus tax exemptions.
An Employee Ownership Trust (EOT) is a trust set up to hold shares in a company on behalf of all employees. When a business owner sells more than 50% of their company to an EOT, the sale is completely exempt from Capital Gains Tax — a major tax benefit introduced in Finance Act 2014. The EOT model makes the employees the indirect owners, improving engagement and productivity.
Key benefits: (1) The selling shareholders pay zero CGT on the sale proceeds — potentially saving millions on a large business sale. (2) The company can pay all employees an annual tax-free bonus of up to £3,600 per person once the EOT controls the company. (3) The purchase is typically funded by the company's own future profits, so no external buyer is needed.
To qualify, the EOT must acquire more than 50% of the ordinary shares and voting rights. All employees must be eligible to benefit from the EOT on the same terms (though allocation can be by salary, length of service, or hours — not by seniority alone). The company must be a trading company or holding company of a trading group. The CGT exemption applies to all selling shareholders regardless of how long they've held shares.
The EOT typically buys the shares using the company's own future earnings. The purchase price is deferred — the company pays the EOT's purchase debt over time from profits, and the EOT repays the selling shareholders in installments. This means sellers receive deferred consideration rather than a lump sum (though some sellers arrange upfront payments via third-party finance).
Yes — many founders continue as employees or directors after an EOT sale. You can retain a minority shareholding (under 50%) if you wish. However, you cannot exercise effective control after the sale, and the EOT trustees (who must include an independent trustee) must act in the interests of all employees. This is a key difference from a traditional sale where you can negotiate ongoing involvement with a new owner.