Employee Ownership Trusts: an increasingly popular exit strategy

For many business owners, the question of ‘what comes next?’ is becoming just as important as building the business itself.

While trade sales and private equity exits remain common routes, a growing number of owners are exploring Employee Ownership Trusts (EOTs) as a structured, values-led alternative.

Once seen as a niche succession option, EOTs are now firmly part of the mainstream exit conversation. They combine a clear commercial framework with meaningful employee engagement and, in the right circumstances, significant tax advantages. But they are not a one-size-fits-all solution.

So how do they actually work, why are they becoming more popular, and when might they make sense?

What is an Employee Ownership Trust?

An Employee Ownership Trust is a structure where a controlling interest in a trading company is sold to a trust established for the benefit of all employees.

In practical terms:

• The existing owners sell shares in the company to the EOT
• The trust becomes the majority shareholder (typically controlling more than 50%)
• Trustees hold and manage the shares on behalf of employees collectively
• Employees do not usually hold shares directly, but benefit through the trust structure
• The model is designed to be long-term, preserving independence while aligning company performance with the workforce.

How the transaction typically works

Although each deal is tailored, the structure usually follows a consistent pattern:

Valuation and agreement

The business is independently valued and a sale price agreed between shareholders and the EOT.

Trust formation and governance

An Employee Ownership Trust is established, with trustees responsible for acting in the interests of all employees.

Funding the transaction

In most cases, the business funds the acquisition over time using future profits, however it is often possible to obtain external debt or third-party capital.

Post-completion operation

The company continues to trade as normal, with ownership held by the trust and governance evolving gradually over time.

This staged approach allows continuity for both leadership and employees, rather than a disruptive change of ownership.

The 2026 tax treatment

EOTs are frequently discussed in the context of their tax profile, but the rules are specific and conditional.

1. Capital gains tax treatment for sellers

Where statutory conditions are satisfied, shareholders may benefit from 50% relief from capital gains tax on the disposal of shares to an Employee Ownership Trust.
This relief is subject to strict requirements, including the trust acquiring control and the ongoing operation of the company for the benefit of all employees.

2. Employee tax-free profit share

Companies controlled by an EOT may pay employees an income tax-free bonus of up to £3,600 per employee per tax year, provided the relevant conditions are met.

This is commonly used as a mechanism to share profits across the workforce, although it must be implemented within the statutory framework and does not remove other employment tax considerations.

3. Inheritance tax treatment

Where structured correctly, transfers into an EOT may qualify for inheritance tax relief, supporting a tax-efficient transition of ownership into the trust structure, subject to the relevant statutory conditions being satisfied.

Why EOTs are becoming more popular

The rise in EOT transactions reflects a broader shift in how owners think about exit, legacy, and employee value.

Key drivers include:

A flexible exit route – Not all businesses attract competitive third-party buyers. EOTs offer an alternative where continuity is a priority.

Alignment of interests – Because employees benefit from business performance through the trust, EOTs can strengthen engagement and long-term thinking.

Control over legacy – Many founders value the ability to preserve independence rather than see the business absorbed into a larger group.

Structured tax efficiency – While not the only driver, the tax framework makes EOTs commercially viable compared to fully taxable disposals.

When an EOT might be appropriate

EOTs tend to work best where:

• The business is profitable and cash-generative
• There is no clear or preferred external buyer
• Continuity and culture are key priorities
• The workforce is stable and capable of operating within a trust structure
• The seller is comfortable receiving proceeds over time

They may be less suitable where:

• A competitive auction process is likely
• The business requires significant external investment
• Immediate full liquidity is required on exit
• There is limited appetite for governance or cultural transition

The commercial reality

While the structure is well established, EOTs are often oversimplified in public discussion.

In practice:

• Consideration is typically paid over time from future profits
• Governance and trustee design are critical to long-term success
• Valuation discipline is essential to ensure the deal is sustainable
• Cultural change is real, even without direct employee share ownership

An EOT is therefore not just a tax structure, but a long-term ownership model that changes how decisions and value are distributed.

Get in touch for support

Employee Ownership Trusts have moved from an alternative succession tool to a genuinely mainstream exit option for business owners.

If you are exploring an exit or succession strategy and would like to understand whether an Employee Ownership Trust could be appropriate, please get in touch with the Verallo team for a confidential conversation.