EOT sale, frequently asked questions.

Selling to an EOT has several major advantages for the owners. The biggest advantage for the owners can simply be the ability to sell the business at a market price which avoids the uncertainties of a sale to a trade or financial buyer or would otherwise be unattractive (for instance due to the impact the sale would have on staff or the culture of the business) or too high risk (for instance due to how an earnout might operate or the risk of sharing sensitive information with a competitor). Other key advantages include control of the sale process and earnout, low deal risks, low costs, flexibility in structuring the transaction and not having to raise external finance.

Yes, the owners can continue to work in the business, and this does not affect their ability to sell their shares free of capital gains tax.

The business needs to be a trading company (as opposed to an investment company) and have a minimum level of employees who are not the owners or connected persons (e.g. spouses). The owners must also be able to sell a controlling stake (more than 50% of the company’s shares) to the EOT. The EOT route is particularly attractive for professional service businesses and for small and medium sized companies generally (those with a value of £0.5m to £30m). It is also attractive to large companies that fail to generate trade buyer interest. Because the EOT model is self-financing (no external finance is required) the business needs to have a certain level of financial resilience to make it suitable for an EOT transaction. The business should have no external debt (or only minor external debt) and its trading outlook should be profitable and cash generative. Having surplus cash in the business is a positive benefit as it can be used to part fund the overall consideration payable to the owners.

An EOT is a form of indirect employee share ownership where a controlling interest in the business is held by the EOT for the benefit of all employees. EOTs were introduced in 2014 by the coalition government to promote wider share ownership and more diverse ways of running a business that could create long term sustainable growth. The incentive for owners to sell to EOTs are the very generous tax breaks offered. An EOT is run by trustees a majority of which must be independent of the owner(s). Trustees typically include the company’s directors, employees and external professionals.

Yes. Most founders / controlling shareholders stay on as director (and often as chair or CEO) for between 1-5  years post-completion, then transition to a part-time non-executive or  consultancy role. You agree your role and time commitment with the trustee  board; there is no requirement to exit operationally. Many founders find the  post-EOT phase the most rewarding part of their career, with a clear financial exit having been arranged and a plan for management succession in place.

Statistics complied by The Employee Ownership Association show that companies across a wide range of business sectors and size have successfully transitioned into an EOT structure, with the most numerous transactions by volume being of companies valued between £1-£10 million.

Companies which have been through an EOT transaction tend to have been trading for at least 5 years, have sustainable profit before tax of at least £0.25 million, have more than 5 employees and are cash generative (ie do not require a significant proportion of profits to be re-invested back into the business).

The Employee Ownership Association publishes statistics on companies which have become employee owned (typically through sale to an EOT). These show that companies across a wide range of business sectors have successfully transitioned into an EOT structure, with the most numerous coming from the business services sector (e.g. architects, quantity surveyors, recruitment consultancies, IFA practices, management consultancies, IT consultancies) although manufacturing, distribution and retail / wholesale businesses are also represented. Companies which have been through an EOT transaction tend to have been trading for at least 5 years, have sustainable profit before tax of at least £0.25 million, have more than 5 employees and are cash generative (i.e. do not require a significant proportion of profits to be re-invested back into the business).

No, this is not the case. The trust (the EOT) holds the shares, and the trustees administer the trust, but the Company continues to be run by its existing directors /  senior management team, unless the founder wishes to retire and to appoint a replacement.

Most founders / controlling shareholders stay on as director (and often as chair or CEO)  for between 1-5 years post-completion, then transition to a part-time non-executive or consultancy role. You agree your role and time commitment with the trustee board; there is no requirement to exit operationally. Many founders find the post-EOT phase the most rewarding part of their career, with a clear financial exit having been arranged and a plan for management succession in place.

The trust (the EOT) holds the shares, and the trustees administer the trust, but the Company continues to be run by its existing directors / senior management team, unless the founder wishes to retire and to appoint a replacement.

Most founders / controlling shareholders stay on as director (and often as chair or CEO) for between 1-5 years post-completion, then transition to a part-time non-executive or consultancy role. You agree your role and time commitment with the trustee board; there is no requirement to exit operationally. Many founders find the post-EOT phase the most rewarding part of their career, with a clear financial exit having been arranged and a plan for management succession in place

It is true that the trustees can appoint and remove directors of the Company, such that they ultimately have control over the Company, but it would be unlikely to exercise this power to overhaul the board of directors, unless the board had become dysfunctional.

RVE comprises 4 professionals: Gerry Young (ACA), Mark Butler (ACA), Tom Lethaby (MBA) and Andrew Carpenter (solicitor). Gerry and Mark were previously at PwC, advising on corporate finance transactions in the London office, and Andrew was previously at Addleshaw Goddard, London, advising on corporate transactions. The team at RVE have advised on over 50 EOT Transactions over the past 6 years.

We offer a full advisory “one stop shop” service, managing the EOT transaction process from start to finish. We provide the necessary corporate finance advice (valuation, deal structuring and stakeholder management), tax clearance advice, and legal input with documentation, to get the transaction done. We can also take on the initial independent trustee role, which a lot of clients find very useful. So with RVE you only need to appoint one adviser (who will work on a fixed fee quote) as opposed to having to appoint and co-ordinate two or three different advisers. We also have extensive experience of advising on EOT Transactions, having advised on over 50 EOT Transactions over the past 6 years.

An Employee Ownership Trust (EOT) is a UK structure that lets a founder / controlling shareholders sell a controlling stake (50.1% -100.0%) in a UK trading company to a trust which is established to hold the shares for the benefit of all the employees of the Company. The trust holds the shares; the staff become the long-term indirect owners of the Company through the trust. It is the most tax-advantaged exit route for most UK private-company founders / shareholders, with 50% Capital Gains Tax relief on qualifying sales since 26 November 2025, such that the effective rate of CGT on sale of shares to an EOT is 12%, compared to the BADR rate of CGT at 18% (applied on the first £1m of gain) and standard rate of CGT at 24%.

Existing shareholder agreements are terminated and the Company’s articles of association are reviewed and amended to accommodate the new EOT structure.

If there are minority shareholders in the Company, such that the EOT holds a majority of the shares in the Company (eg 75%) but certain shareholders have retained a minority stake (eg 25%), the Articles will be amended to include minority shareholder protections: pre-emption rights, equivalent dividend treatment and exit mechanics (“tag and drag”).

The EOT will be the controlling shareholder but will have an obligation to consult with the vendor shareholders (for so long as any deferred consideration remains outstanding) in relation to “Reserved Matters”, being material corporate actions which might prejudice the ability of the Company to fund the outstanding deferred consideration.

The valuation sets the price for the shares being sold to the EOT. The valuation is carried out by an independent professional (such as RVE) and comprises: a) the business value (a market multiple of the Company’s sustainable profits), plus b) surplus cash or other assets, less c) debt. The valuation sets the price receivable by every shareholder selling into the EOT, on a per-share basis. To obtain EOT Relief on the sale of shares to an EOT the price receivable must be no greater than market value, hence a valuation is required to satisfy this condition.

Yes, but the transaction requires careful structuring.  A co-shareholder cannot force you to sell your shares into the EOT against your will, but the EOT will only proceed with a controlling stake (a minimum of 50.1%, but typically 75% or more), so the deal needs sufficient support from shareholders to meet this threshold. RVE handles this by designing the transaction so opt-out shareholders retain their minority stake on agreed terms, including pre-emption rights, dividend treatment and exit mechanics (“tag and drag”). We have structured EOT transactions incorporating minority shareholders on several occasions.

If there are minority shareholders in the Company, such that the EOT holds a majority of the shares in the Company (eg 75%) but certain shareholders have decided to retain a minority stake (eg 25%), the Articles will be amended to include minority shareholder protections: pre-emption rights, equivalent dividend treatment and exit mechanics (“tag and drag”).

An EOT must hold a controlling stake in the Company (over 50%) to qualify for the necessary tax reliefs. A small number of our deals have been structured with shareholders selling 70-90% to the EOT and retaining 10-30% as a minority stake.  

A minority stake is often retained when the founder wishes ultimately to pass down some of the shares to family members through his/her Estate, or believes that he/she will be able to sell the shares in the Company at a higher price when the EOT decides to sell the Company. 

Note that minority shares when they are ultimately sold do not benefit from EOT Relief (only the original sale of shares to the EOT qualifies for EOT Relief) , so any gain on sale of minority shares would be taxed at standard rate CGT (currently 24%).

The CGT charge at 12% of the gain does crystallise at the date of sale, and is payable by the 31 January following the end of the tax year in which the EOT Transaction completed. So for  example, if the EOT Transaction took place on 30 September 2026 (which is within the tax year 2026/27) the CGT would be payable by vendor shareholders before 31 January 2028. If the sale proceeds that have been received by the CGT  due date (31 January 2028 in the example above) are less than 2.0x the CGT  liability payable, then the vendor shareholder can apply to HMRC to pay the  CGT liability in instalments, under the provisions of s.280 of TCGA, 1992. So  for example, if a founder sold 100% of shares in a company for £6m on 30 September 2026, and had received £1m by 31 January 2028 (with the balance of £5m payable as deferred consideration over the next 5-8 years),  he/she would have received £1m of  proceeds out of which a CGT liability of £6m x  12% = £720k is payable. This is a ratio of  1.0/0.72 = 1.39x so the vendor could apply to pay CGT by instalments, with  the first instalment set at £1.0m x 50% = £500k payable on 31 January 2028,  and further instalments set at 50% of proceeds until the overall £720k tax  liability has been settled.

EOT Relief can be clawed back if, within a 4 year period starting from the end of the tax year in which the EOT Transaction took place, the EOT ceases to be independent (because a majority of the trustees are connected to the vendor shareholders), the EOT ceases to be UK domiciled (because a majority of the trustees are located offshore), the EOT ceases to have control of the Company or the Company ceases to trade. It is important therefore to ensure that the trustee company which administers the EOT is correctly constituted - if so these risks can be managed and should not be material.

Yes. The effective date at which CGT is charged is the completion date. Deals that completed before 26 November 2025 attracted 100% relief (nil rate of CGT). Deals completing on or after that date are assessed at 50% relief (12%effective rate of CGT).

Yes, the Government still wishes to encourage EOT ownership and through EOT Relief the effective rate of CGT on sale of shares to an EOT now stands at 12% which compares favourably with the rate of CGT that would apply on a conventional sale (to a  trade buyer or to a financial buyer / MBO) at 18-24%.

An EOT Transaction also avoids deal-failure  risk (at least 30-40% of trade-sale processes do not complete) and can be  executed at lower cost than a conventional sale.

Yes. The October 2024 Budget announced a number of changes to the conditions for EOT Relief, one of which is that the majority of trustees must be independent of the selling shareholders.  This ensures that effective control of the Company has passed away from the selling shareholders. The November 2025 Budget did not introduce any further changes to the conditions for EOT Relief, but did change the effective rate of CGT that is charged under EOT Relief, from 0% to 12%.

Yes, the Government still wishes to encourage EOT ownership and through EOT Relief the effective rate of CGT on sale of shares to an EOT now stands at 12% which compares favourably with the rate of CGT that would apply on a conventional sale (to a trade buyer or to a financial buyer / MBO) at 18-24%.

An EOT Transaction also avoids deal-failure  risk (at least 30-40% of trade-sale processes do not complete) and can be executed at lower cost than a conventional sale.

An Employee Ownership Trust (EOT) is a UK structure that lets a founder / controlling shareholders sell a controlling stake (50.1% -100.0%) in a UK trading company to a trust which is established to hold the shares for the benefit of all the employees of the Company. The trust holds the shares; the staff become the long-term indirect owners of the Company through the trust. It is the most tax-advantaged exit route for most UK private-company founders / shareholders, with 50% Capital Gains Tax relief on qualifying sales since 26 November 2025, such that the effective rate of CGT on sale of shares to an EOT is 12%, compared to the BADR rate of CGT at 18% (applied on the first £1m of gain) and standard rate of CGT at 24%.

Selling to an EOT has a number of major advantages for the business and staff. Key advantages include the culture of the business being maintained, long term succession planning being possible and management and staff being clearly incentivised (including tax free bonuses of currently up to £3,600 per person per year). All this should help the business retain and recruit good staff, improve employee engagement which together can improve productivity and generate business out-performance.

No. The £3,600 per-employee, per-year, income tax-free EOT profit share bonus regime was not changed by the 2025 Budget and continues to apply, as it has done since the Budget of 2014. EOT-owned companies can pay each qualifying employee up to £3,600  per year as an income tax-free bonus, (although both employer and employee  NICs do apply). There are conditions which apply to the bonus payments to be eligible for income tax  relief, the most relevant of which is that the bonuses must be distributed  “equitably” to all employees who have served a minimum period with the  company.

A Company which is owned by an EOT can be sold at a later date, although there are significant tax penalties (“clawback”) if an onward sale occurs within 4-5 years of the original EOT transaction.  The trustees also have a fiduciary duty to the employees, such that any sale by the EOT must demonstratively be in the interests of the employees as a whole. In practice, this means a corporate sale by the EOT becomes a decision taken ultimately by the trustees who would take professional advice before arriving at a conclusion.

If a sale does occur, the EOT would apply the sale proceeds first to pay its own capital gains tax, then to pay any balance due on the vendor loan, and then to distribute the balance amongst the employees on an equitable basis.

Employees do not directly own shares in an EOT-owned company. The trust holds the shares on behalf of all qualifying employees as beneficiaries (similar to the John Lewis Partnership model). When an employee leaves the Company or retires he/she ceases to be a beneficiary of the EOT, and when a new employee joins the Company he/she automatically becomes a beneficiary of the EOT after a minimum period of service. Employees benefit from a “dividend” through annual profit share bonuses (the first £3,600 of which is income tax free per employee, per year), and also through having a voice in trustee board appointments. If the EOT ever sold the Company (which is a rare event) then the employees would also benefit from a distribution by the EOT of the sale proceeds, on an equitable basis.

In practical day-to-day terms, very little changes immediately. Employees terms of employment with the Company do not alter but they may become entitled to profit share bonuses (up  to £3,600 per year tax-free) under EOT ownership.

Employees do not own the Company directly as the EOT is a trust which holds the shares in the Company, typically 100% ownership, on behalf of employees as beneficiaries (similar to the John Lewis Partnership model). When an employee leaves the Company or  retires he/she ceases to be a beneficiary of the EOT, and when a new employee joins the Company he/she automatically becomes a beneficiary of the EOT after  a minimum period of service.

Employees benefit from a “dividend” through annual profit share bonuses (the first £3,600 of which is income tax free per employee, per year), and also through having a voice in trustee board appointments.

If the EOT ever sold the Company (which is a rare event) then the employees would also benefit from a distribution by the EOT of the sale proceeds, on an equitable basis.

EOA research consistently shows employee-owned businesses outperform privately-held peers on productivity, profitability and employee engagement. RVE founders consistently report that their businesses perform ahead of plan post-completion, with vendor loans paid down ahead of schedule. The cultural alignment and engagement boost typically delivers measurable productivity gains within the first 12 to 24 months of EO. Growth depends on the business; the EOT structure does not constrain it.

NDA before any substantive discussion with the founder. We work inside the four corners of the matter you’ve briefed us on and do not approach the founder’s wider network without your knowledge.

We don’t pay introducer fees for client referrals, we prefer the referring adviser keeps a clean professional relationship with the client, and we are happy to explicitly acknowledge the referrer in any deal communications. If a fee-share arrangement is material to your firm’s model, say so early in the conversation and we’ll discuss.

A phone call or an email to Tom at tom@rvecf.com with a brief summary of the client and the trigger. We take the first meeting at our cost. Your client stays your client; we become a named specialist on their transaction.

No. We are corporate finance advisers, not wealth managers. Founders receiving completion proceeds should have a wealth adviser of their own choosing; we’re happy to work alongside an existing IFA relationship and we don’t provide an alternative.

The independent trustee service runs for the first 12 months by default. After that, ongoing EOT administration, annual trustee meetings and employee communications are not work we typically continue with, we can refer to a trustee administration specialist if useful. Post-completion tax compliance stays with your firm.

No. Andrew drafts the EOT-specific legal documents, trust deed, sale agreement, trustee protections, and his engagement ends at completion. Your ongoing corporate legal relationship with the client continues.

No. Your audit relationship stays where it is. We do the corporate finance, tax structuring, legal drafting and trustee work for the EOT transaction, nothing outside that engagement. The day after completion, your client’s audit arrangements are unchanged.

Selling to an EOT can be a relatively quick process typically taking less than 6 months to complete once a decision has been taken by the owners to proceed. This is because the key steps in an EOT transaction are relatively straightforward and the negotiations are very much “in-house” involving the owners, the company and the EOT. With an EOT transaction there are no long delays in identifying buyers, preparing information memoranda, waiting for debt and equity finance to be arranged and negotiating with potential buyers over price, disclosures and onerous warranties.

Selling to an EOT is effectively an “in-house” transaction controlled by the owners and negotiated with the company and the EOT, which the company establishes. The business is independently valued to ensure the trustees of the EOT can be satisfied they are paying a fair market value. This valuation sets the sale price to be paid to the owners which the EOT settles in cash (using any surplus cash in the business) and by issuing loan notes to the owners. The loan notes are scheduled for repayment by the EOT over the earnout period, subject to the EOT receiving funding from the company. During the earnout period or until the loan notes are fully repaid, the rights of the EOT are restricted and the former owners will continue to retain certain rights to protect their interests.

The typical EOT transaction timeline from appointment of advisers to completion is 3-4 months, which includes 3-4 weeks for the HMRC clearance (TIS). A conventional sale process (sale to trade buyer, financial buyer or management team) will typically take 18-24 months from appointment of advisers to completion.

The key elements of an EOT transaction are feasibility review, structuring, valuation,  tax clearance and legal documentation . It is possible to complete these work streams within 2 months although it requires considerable co-ordination and  commitment from both adviser and the Company. The HMRC clearance process typically takes 3-4 weeks, within the transaction timetable.

For EOT Relief to apply to the sale of shares to an EOT the transaction must be  classified by HMRC as a capital transaction.

An EOT Transaction involves the Company making distributions to the EOT out of its distributable profits, which the EOT then applies to satisfy the sale consideration due to the vendor shareholders. These distributions happen at completion and then typically over 5-8 years  to satisfy in full the sale consideration.

It is  important that HMRC does not classify the payments that the EOT is making to the shareholders as “disguised dividends” because they are funded by the  Company out of its distributable reserves.   If this were the case then the receipts by the shareholders would be  treated as income and taxable as dividends.

Hence it is good market practice to apply to HMRC for Transactions in Securities (“TIS”) clearance  to confirm that the transaction will be treated as a capital transaction that  is subject to the CGT regime.

TIS clearance  is typically submitted once the Heads of Terms for the transaction have been agreed with the vendor shareholders.

HMRC has a  statutory 30 day response window for TIS clearance requests, and in the vast majority of cases clearance is received within this 30 day period, if the transaction is structured correctly and proper disclosure has been made in the clearance letter.

Before we meet a client for the first time, we would ask for some information on the Company (e.g. recent accounts and shareholder structure). With this information and a Q&A session with the founder / controlling shareholder we can usually address three key questions:  is an EOT transaction feasible (ie will the EOT Relief conditions be satisfied), what is the likely valuation range, and over what time period would the vendor shareholders be paid.

At our first meeting the Q&A will focus on company history, ownership, financial  performance (historic and prospective), employee headcount and culture.

We are happy to meet in person or over Teams / Zoom video call.

A typical EOT Transaction will take 4 months. RVE acts as the adviser to the Company to execute the transaction, carrying out work over 6 phases: feasibility review, transaction structuring, valuation, tax clearance, legal transaction documents drafting, completion.

Within the timetable HMRC clearance is the most variable element. Clearance is normally received 4 weeks after submission, although this can be shorter (and occasionally longer if HMRC requires additional clarification on elements of the transaction).

We offer a full advisory “one stop shop” service, managing the EOT transaction process from start to finish. We provide the necessary corporate finance advice (valuation, deal structuring and stakeholder management), tax clearance advice, and legal input with documentation, to get the transaction done. We can also take on the initial independent trustee role, which a lot of clients find very useful. So with RVE you only need to appoint one adviser (who will work on a fixed fee quote) as opposed to having to appoint and co-ordinate two or three different advisers. We also have extensive experience of advising on EOT Transactions, having advised on over 50 EOT Transactions over the past 6 years.

An EOT sale is a share transaction where a founder/the shareholders sell more than 50% of the Company (but typically 100%) to a trust (the EOT) which has been set up for the benefit of the employees.  The sale price is determined by an independent valuation.  The sale consideration is funded by the Company itself, with any surplus cash within the Company utilised to pay some of the sale consideration at completion, with the balance payable over 5-8 years out of the future profits of the Company.  

RVE acts as the adviser to the Company to execute the transaction, carrying out work over 6 phases:  feasibility review, transaction structuring, valuation, tax clearance, legal transaction documents drafting, completion.  An EOT transaction typically completes in 4 months.

The incentives for owners to sell to an EOT include attractive tax reliefs. Provided the owners sell a controlling stake (more than 50% of the company’s shares) to the EOT they can qualify for a reduced rate of capital gains tax. In addition, the company controlled by the EOT can pay tax-free cash bonuses to employees of up to £3,600 per employee per year.

The owners get a full market price for the shares that are sold to the EOT. The purchase consideration typically comprises a cash payment at completion (paid out of surplus cash in the business) together with loan notes which the EOT repays over an earnout period (typically 5 - 8 years in length) using cash generated by the business.

Deal risks on an EOT transaction are much lower than on other exit routes because there is a clear buyer (the EOT), the price is set by an independent valuation, there is no requirement for external financing and because negotiations are “in-house” involving just the owners, the company and the EOT. The key deal risks for an EOT transaction are the owners changing their mind over whether to sell and unforeseen changes in the trading outlook for the business.

The CGT charge at 12% of the gain does crystallise at the date of sale, and is payable by the 31 January following the end of the tax year in which the EOT Transaction completed. So for  example, if the EOT Transaction took place on 30 September 2026 (which is within the tax year 2026/27) the CGT would be payable by vendor shareholders before 31 January 2028. If the sale proceeds that have been received by the CGT  due date (31 January 2028 in the example above) are less than 2.0x the CGT  liability payable, then the vendor shareholder can apply to HMRC to pay the  CGT liability in instalments, under the provisions of s.280 of TCGA, 1992. So  for example, if a founder sold 100% of shares in a company for £6m on 30 September 2026, and had received £1m by 31 January 2028 (with the balance of £5m payable as deferred consideration over the next 5-8 years),  he/she would have received £1m of  proceeds out of which a CGT liability of £6m x  12% = £720k is payable. This is a ratio of  1.0/0.72 = 1.39x so the vendor could apply to pay CGT by instalments, with  the first instalment set at £1.0m x 50% = £500k payable on 31 January 2028,  and further instalments set at 50% of proceeds until the overall £720k tax  liability has been settled.

A sale of the Company to an EOT, or a sale  of the Company to a management-owned Newco (“MBO”) both pass ownership to employees.  However, in the former example all employees are indirect shareholders and in the latter just the top layer of management will be direct shareholders.

An MBO will have external funding - the Newco funds the purchase price from a combination of management’s own resources, from bank debt and from a financial investor.  An EOT typically has no external funding, with the purchase price paid to the vendors over a 5-8 year period, and funded by the Company.

 As a result, an MBO transaction with external funding would be expected to deliver all (or the majority) of the sale price to the vendors in cash at completion, with  perhaps a minority of the sale price payable as deferred or contingent consideration.

 An EOT transaction, in contrast, would deliver the sale price to the vendors in instalments, typically over a 5-8 year period.

 An MBO requires the management team to make a significant personal financial  commitment (via savings and/or bank debt secured against personal assets).  An EOT is funded by the Company itself with payments to the vendor over 5-8 years.

 A sale of shares to a Newco through an MBO transaction would attract CGT at 18% on the  first £1m of capital gain (assuming BADR applies), and CGT at 24% on the  balance of the gain.

 A sale of shares to an EOT would attract CGT at 12% on the entire capital gain.

 An MBO transaction has higher “execution risk” than an EOT Transaction as the Newco has to source external funding and undertake extensive due diligence on the Company.

A sale of the Company to a trade buyer would be expected to deliver all (or the majority) of the sale price to the vendors in cash at completion, with perhaps a minority of the sale price payable as deferred or contingent consideration.

 An EOT transaction, in contrast, would deliver the sale price to the vendors in instalments, typically over a 5-8 year period.

 A sale of shares to a trade buyer would attract CGT at 18% on the first £1m of capital  gain (assuming BADR applies), and CGT at 24% on the balance of the gain.

 A sale of shares to an EOT would attract CGT at 12% on the entire capital gain.

 A trade sale has higher “execution risk” than an EOT Transaction as a willing trade buyer  must be sourced, the buyer may have to raise additional funding to finance  the purchase,  and the buyer will wish  to undertake extensive due diligence on the Company.

A sale of the Company to private equity would be expected to deliver a significant proportion of the sale price to the vendors in cash at completion, but the vendors will often be asked to retain a minority stake and remain with the business for an earn out period, with perhaps a minority of the sale price payable as deferred or contingent consideration. An EOT transaction, in contrast, would allow the sale of 100% of the shares but would deliver the sale price to the vendors in instalments, typically over a 5-8 year period. A sale of shares to private equity would attract CGT at 18% on the first £1m of capital gain (assuming BADR is available), and CGT at 24% on the balance of the gain. A sale of shares to an EOT would attract CGT at 12% on the entire capital gain. A sale to private equity has higher “execution risk” than an EOT Transaction as a financial buyer often has to arrange debt finance and will wish to undertake extensive due diligence on the Company.

The vendor loan is the deferred consideration owed to the selling shareholders, typically repayable from future Company profits over 5-8 years. Interest is not usually charged on the balance of the loan. The loan is structured so that the Company can repay in flexible instalments, without having strict financial covenants which might lead to an event of default, but the vendors also have protections to ensure that their position as a de facto creditor of the Company is not compromised.

A sale of  shares by a founder / shareholders to an EOT is a share transaction, not a property transaction, so SDLT does not apply.  Stamp Duty Reserve Tax of 0.5% is typically payable by the EOT (as buyer of the shares) on the consideration paid, calculated at completion. The SDRT cost is funded by the Company, not by the selling shareholders personally.

The CGT liability at 12% of the gain (the gain being the value of the shares sold to the EOT less the original acquisition cost “base cost” of the shares)  crystallises in the tax year of the EOT Transaction, and is payable to HMRC  by the 31st January following the end of the tax year.

A shareholder can apply to pay the CGT liability by instalments (s280 of TCGA 1992) if the amount of sale consideration received at the date the CGT liability becomes due is less than 2x the liability that is due.

Yes, the Government still wishes to encourage EOT ownership and through EOT Relief the effective rate of CGT on sale of shares to an EOT now stands at 12% which compares favourably with the rate of CGT that would apply on a conventional sale (to a  trade buyer or to a financial buyer / MBO) at 18-24%.

An EOT Transaction also avoids deal-failure  risk (at least 30-40% of trade-sale processes do not complete) and can be  executed at lower cost than a conventional sale.

No. The £3,600 per-employee, per-year, income tax-free EOT profit share bonus regime was not changed by the 2025 Budget and continues to apply, as it has done since the Budget of 2014. EOT-owned companies can pay each qualifying employee up to £3,600  per year as an income tax-free bonus, (although both employer and employee  NICs do apply). There are conditions which apply to the bonus payments to be eligible for income tax  relief, the most relevant of which is that the bonuses must be distributed  “equitably” to all employees who have served a minimum period with the  company.

For a higher-rate CGT taxpayer (24% rate), the effective CGT on the qualifying EOT-sale portion is 12% (24% × 50% relief). For a basic-rate CGT taxpayer (18% rate), the effective rate is 9% on the qualifying portion. This compares with full 24% on a trade sale and BADR rates of 14% (from April 2025) and 18% (from April 2026). The EOT remains the most tax-efficient legitimate exit route for most UK founders.

An independent valuation sets the price for the shares being sold to the EOT.  The valuation is carried out by an independent professional (such as RVE) and comprises of: a)the business value (a market multiple of the Company’s sustainable profits), plus b) surplus cash or other surplus assets, less c) debt. The sale consideration is funded by the Company itself, with any surplus cash within the Company utilised to pay some of the sale consideration at completion, with the balance payable over 5-8 years out of the future profits of the Company.  

EOT Relief is available on the sale of shares to an EOT, which reduces the effective rate of CGT on the gain realised by the selling shareholder(s) to 12%.

The valuation sets the price for the shares being sold to the EOT. The valuation is carried out by an independent professional (such as RVE) and comprises: a) the business value (a market multiple of the Company’s sustainable profits), plus b) surplus cash or other assets, less c) debt. The valuation sets the price receivable by every shareholder selling into the EOT, on a per-share basis. To obtain EOT Relief on the sale of shares to an EOT the price receivable must be no greater than market value, hence a valuation is required to satisfy this condition.

An EOT must hold a controlling stake in the Company (over 50%) to qualify for the necessary tax reliefs. A small number of our deals have been structured with shareholders selling 70-90% to the EOT and retaining 10-30% as a minority stake.  

A minority stake is often retained when the founder wishes ultimately to pass down some of the shares to family members through his/her Estate, or believes that he/she will be able to sell the shares in the Company at a higher price when the EOT decides to sell the Company. 

Note that minority shares when they are ultimately sold do not benefit from EOT Relief (only the original sale of shares to the EOT qualifies for EOT Relief) , so any gain on sale of minority shares would be taxed at standard rate CGT (currently 24%).

The company’s directors continue to run the business following a sale to the EOT. The EOT has a supervisory role with the right to remove directors acting counter to the EOT’s interests. In principle the EOT can also sell the business. During the earnout period or until the loan notes are fully repaid the rights of the EOT are restricted and the former owners will continue to retain certain rights to protect their interests.

Technically yes, although there are significant tax penalties (“clawback”) if an onward sale occurs within 4-5 years of the original EOT transaction. The trustees also have a fiduciary duty to the employees, such that any sale by the EOT must demonstratively be in the interests of the employees as a whole. In practice, this means a corporate sale by the EOT becomes a decision taken ultimately by the trustees who would take professional advice before arriving at a conclusion.

Yes. Most founders / controlling shareholders stay on as director (and often as chair or CEO) for between 1-5  years post-completion, then transition to a part-time non-executive or  consultancy role. You agree your role and time commitment with the trustee  board; there is no requirement to exit operationally. Many founders find the  post-EOT phase the most rewarding part of their career, with a clear financial exit having been arranged and a plan for management succession in place.

Yes. The October 2024 Budget announced a number of changes to the conditions for EOT Relief, one of which is that the majority of trustees must be independent of the selling shareholders.  This ensures that effective control of the Company has passed away from the selling shareholders. The November 2025 Budget did not introduce any further changes to the conditions for EOT Relief, but did change the effective rate of CGT that is charged under EOT Relief, from 0% to 12%.

A Company which is owned by an EOT can be sold at a later date, although there are significant tax penalties (“clawback”) if an onward sale occurs within 4-5 years of the original EOT transaction.  The trustees also have a fiduciary duty to the employees, such that any sale by the EOT must demonstratively be in the interests of the employees as a whole. In practice, this means a corporate sale by the EOT becomes a decision taken ultimately by the trustees who would take professional advice before arriving at a conclusion.

If a sale does occur, the EOT would apply the sale proceeds first to pay its own capital gains tax, then to pay any balance due on the vendor loan, and then to distribute the balance amongst the employees on an equitable basis.

Employees do not directly own shares in an EOT-owned company. The trust holds the shares on behalf of all qualifying employees as beneficiaries (similar to the John Lewis Partnership model). When an employee leaves the Company or retires he/she ceases to be a beneficiary of the EOT, and when a new employee joins the Company he/she automatically becomes a beneficiary of the EOT after a minimum period of service. Employees benefit from a “dividend” through annual profit share bonuses (the first £3,600 of which is income tax free per employee, per year), and also through having a voice in trustee board appointments. If the EOT ever sold the Company (which is a rare event) then the employees would also benefit from a distribution by the EOT of the sale proceeds, on an equitable basis.

The trust (the EOT) holds the shares, and the trustees administer the trust, but the Company continues to be run by its existing directors / senior management team, unless the founder wishes to retire and to appoint a replacement.

Most founders / controlling shareholders stay on as director (and often as chair or CEO) for between 1-5 years post-completion, then transition to a part-time non-executive or consultancy role. You agree your role and time commitment with the trustee board; there is no requirement to exit operationally. Many founders find the post-EOT phase the most rewarding part of their career, with a clear financial exit having been arranged and a plan for management succession in place

It is true that the trustees can appoint and remove directors of the Company, such that they ultimately have control over the Company, but it would be unlikely to exercise this power to overhaul the board of directors, unless the board had become dysfunctional.

Existing shareholder agreements are terminated and the Company’s articles of association are reviewed and amended to accommodate the new EOT structure.

If there are minority shareholders in the Company, such that the EOT holds a majority of the shares in the Company (eg 75%) but certain shareholders have retained a minority stake (eg 25%), the Articles will be amended to include minority shareholder protections: pre-emption rights, equivalent dividend treatment and exit mechanics (“tag and drag”).

The EOT will be the controlling shareholder but will have an obligation to consult with the vendor shareholders (for so long as any deferred consideration remains outstanding) in relation to “Reserved Matters”, being material corporate actions which might prejudice the ability of the Company to fund the outstanding deferred consideration.

The EOT is administered by a trustee company, which is formed at the direction of the Company. The trustee company is a UK incorporated dormant company limited by guarantee, whose sole purpose is to administer the trust. The trustee company is registered at Companies House. The directors of the trustee company (known as “the trustees”) are in the first instance appointed by the Company, and will typically comprise of a mix of the founder / owner, an independent professional and an employee, but a majority of the trustees must not e connected to the vendor shareholders

It is not essential but some shareholders wish to take their own separate legal advice.  RVE is appointed by the Company and we draft the legal transaction documents which represent market terms between a willing buyer and willing seller. RVE is not therefore acting for the selling shareholders, or for the EOT as a buyer, but sits in the middle to determine a market price for the transaction (through the independent valuation) and market terms for the transaction (by drafting the transaction documents based on market precedent).

Some founders elect to have their own legal counsel to review the transaction documents independently, which we welcome and accommodate. Most do not, as the transaction documents are relatively easy to understand and reflect a clear Heads of Terms document which RVE has drafted.

The deferred consideration due to the vendors is repayable from future company profits, typically over a 5-8 year period.  So if the business genuinely struggles, the term of the loan note may need to be extended by 2-3 years.  In extreme circumstances, some of the vendor loan may need to be written off (eg if the  business were to become insolvent).

The vendors do therefore retain business risk relating to the ultimate payment of the sale consideration under the EOT model.

If the business outperforms the original projections however, the vendor loan can be accelerated, and some vendors have been paid out in full within 4 years.

Yes, but the transaction requires careful structuring.  A co-shareholder cannot force you to sell your shares into the EOT against your will, but the EOT will only proceed with a controlling stake (a minimum of 50.1%, but typically 75% or more), so the deal needs sufficient support from shareholders to meet this threshold. RVE handles this by designing the transaction so opt-out shareholders retain their minority stake on agreed terms, including pre-emption rights, dividend treatment and exit mechanics (“tag and drag”). We have structured EOT transactions incorporating minority shareholders on several occasions.

If there are minority shareholders in the Company, such that the EOT holds a majority of the shares in the Company (eg 75%) but certain shareholders have decided to retain a minority stake (eg 25%), the Articles will be amended to include minority shareholder protections: pre-emption rights, equivalent dividend treatment and exit mechanics (“tag and drag”).

EOT Relief can be clawed back if, within a 4 year period starting from the end of the tax year in which the EOT Transaction took place, the EOT ceases to be independent (because a majority of the trustees are connected to the vendor shareholders), the EOT ceases to be UK domiciled (because a majority of the trustees are located offshore), the EOT ceases to have control of the Company or the Company ceases to trade. It is important therefore to ensure that the trustee company which administers the EOT is correctly constituted - if so these risks can be managed and should not be material.

A trade buyer should in principle be able to pay the highest price for your business. The buyer may be able to realise “synergies” through a combination of the two businesses, and should be prepared to pay a premium. A private equity buyer may be able to offer an attractive price for the company as a result of efficient funding structures (use of debt) and possibly synergies (if acquiring through a platform company). The EOT, as the buyer in an EOT Transaction, cannot generate synergies or use aggressive debt structures. However, the price it pays is set at an independent valuation which reflects the average price paid for similar businesses, so the price it offers is not set at a discount to the market price. A trade sale or private equity sale can often fail to complete due to problems during due diligence, or a failure to raise funding, or through onerous warranties / indemnities being demanded by the purchaser. Indeed, we estimate that over 75% of SMEs that initiate a sale process fail to achieve completion. Furthermore, if completion does occur, vendors of SMEs often find that the initial headline price for the sale, which may be attractive, is not always realised. Adjustments arising from completion accounts, earn-out structures, warranty claims and minority share retentions can reduce the actual proceeds received on sale well below the headline price. An EOT sale is simpler to execute (in our experience >95% completion rate, as both due diligence and funding structure are more straightforward). Furthermore, the sale price is set by an independent valuation which is fixed, and is not subject to downward adjustment through earn out structures. In addition, the proceeds on sale of shares to an EOT are taxed at a lower rate (12% effective rate of CGT through EOT Relief) compared to the 18-24% CGT rate levied on the sale of shares to a trade buyer or private equity.

On headline price, sometimes slightly. Trade buyers may pay a "strategic premium" of 10-20% above independent valuation for synergies. On net cash to the founder, the EOT route typically wins under the post-Budget regime once the 12% effective CGT rate is factored in versus the trade-sale 24% rate. RVE models both scenarios for your specific business at the engagement stage so you can compare apples to apples.

Yes, the Government still wishes to encourage EOT ownership and through EOT Relief the effective rate of CGT on sale of shares to an EOT now stands at 12% which compares favourably with the rate of CGT that would apply on a conventional sale (to a trade buyer or to a financial buyer / MBO) at 18-24%.

An EOT Transaction also avoids deal-failure  risk (at least 30-40% of trade-sale processes do not complete) and can be executed at lower cost than a conventional sale.

No. Employee-owned businesses in the UK consistently outperform their privately-held peers on productivity, profitability and employee engagement, according to EOA research. Many companies that have become EOT-owned  out-perform their businesses plan post-completion, with vendor loans paid down earlier than the 5-8 year typical average.

 The Company continues to be managed by a board which makes executive decisions and which continues to have a focus on the profitable development of the business.  The company is not run by a “workers collective”.

No, this is not the case. The trust (the EOT) holds the shares, and the trustees administer the trust, but the Company continues to be run by its existing directors /  senior management team, unless the founder wishes to retire and to appoint a replacement.

Most founders / controlling shareholders stay on as director (and often as chair or CEO)  for between 1-5 years post-completion, then transition to a part-time non-executive or consultancy role. You agree your role and time commitment with the trustee board; there is no requirement to exit operationally. Many founders find the post-EOT phase the most rewarding part of their career, with a clear financial exit having been arranged and a plan for management succession in place.

EOA research consistently shows employee-owned businesses outperform privately-held peers on productivity, profitability and employee engagement. RVE founders consistently report that their businesses perform ahead of plan post-completion, with vendor loans paid down ahead of schedule. The cultural alignment and engagement boost typically delivers measurable productivity gains within the first 12 to 24 months of EO. Growth depends on the business; the EOT structure does not constrain it.

The deferred consideration due to the vendors is repayable from future company profits, typically over a 5-8 year period.  So if the business genuinely struggles, the term of the loan note may need to be extended by 2-3 years.  In extreme circumstances, some of the vendor loan may need to be written off (eg if the  business were to become insolvent).

The vendors do therefore retain business risk relating to the ultimate payment of the sale consideration under the EOT model.

If the business outperforms the original projections however, the vendor loan can be accelerated, and some vendors have been paid out in full within 4 years.

The business needs to be a trading company (as opposed to an investment company) and have a minimum level of employees who are not the owners or connected persons (e.g. spouses). The owners must also be able to sell a controlling stake (more than 50% of the company’s shares) to the EOT. The EOT route is particularly attractive for professional service businesses and for small and medium sized companies generally (those with a value of £0.5m to £30m). It is also attractive to large companies that fail to generate trade buyer interest. Because the EOT model is self-financing (no external finance is required) the business needs to have a certain level of financial resilience to make it suitable for an EOT transaction. The business should have no external debt (or only minor external debt) and its trading outlook should be profitable and cash generative. Having surplus cash in the business is a positive benefit as it can be used to part fund the overall consideration payable to the owners.

Statistics complied by The Employee Ownership Association show that companies across a wide range of business sectors and size have successfully transitioned into an EOT structure, with the most numerous transactions by volume being of companies valued between £1-£10 million.

Companies which have been through an EOT transaction tend to have been trading for at least 5 years, have sustainable profit before tax of at least £0.25 million, have more than 5 employees and are cash generative (ie do not require a significant proportion of profits to be re-invested back into the business).

The Employee Ownership Association publishes statistics on companies which have become employee owned (typically through sale to an EOT). These show that companies across a wide range of business sectors have successfully transitioned into an EOT structure, with the most numerous coming from the business services sector (e.g. architects, quantity surveyors, recruitment consultancies, IFA practices, management consultancies, IT consultancies) although manufacturing, distribution and retail / wholesale businesses are also represented. Companies which have been through an EOT transaction tend to have been trading for at least 5 years, have sustainable profit before tax of at least £0.25 million, have more than 5 employees and are cash generative (i.e. do not require a significant proportion of profits to be re-invested back into the business).