What Does Employee Ownership Trust (EOT) Mean in the UK?
An Employee Ownership Trust, or EOT, is a structure that allows a controlling interest in a company…
to be held in trust for the benefit of its employees. It can provide business owners with an alternative to a trade sale, while allowing the company to remain independent and giving employees a collective stake in its future.
1. How does an EOT work?
Instead of selling the business to an external buyer, the shareholders sell a controlling interest to an Employee Ownership Trust.
The trust is managed by trustees, who hold the shares on behalf of eligible employees collectively. Employees do not normally own individual shares, but they benefit from the trust owning the company on their behalf.
2. How is the seller paid?
In many EOT transactions, the purchase price is funded partly from available cash and partly from future company profits.
This means the seller may receive some proceeds at completion, with the balance paid over several years.
The exact structure will depend on the company’s cash position, profitability, borrowing capacity and the terms agreed.
3. What are the tax benefits?
For qualifying disposals made on or after 26 November 2025, 50% of the gain is exempt from Capital Gains Tax, with the remaining 50% subject to CGT under the normal rules.
Employees can also receive qualifying bonuses of up to £3,600 per year free of income tax, although National Insurance can still apply and the relevant conditions must be met.
4. Why might an owner choose an EOT?
For some business owners, an EOT offers a way to realise value while preserving the company’s independence, culture and workforce.
It can be particularly attractive where the owner wants to reward employees, maintain continuity and avoid selling to an external acquirer.
It can also provide a smoother ownership transition where there is already a capable management team in place.
5. How is the business valued?
An EOT transaction still requires a robust, independent view of market value.
The trustees must take reasonable steps to ensure that the consideration paid for the shares does not exceed their market value.
The valuation also needs to be commercially affordable. Agreeing a headline value that places too much pressure on future cash flow could make it difficult for the business to fund investment, growth and payments to the former shareholders.
6. Is an EOT right for every business?
No. An EOT can work well where there is strong cash generation, a capable management team and an owner who values continuity and legacy.
However, it may be less suitable where the seller needs most of their proceeds immediately, where cash flow is unpredictable, or where maximising value through competition between external buyers is the main objective.
The right exit route depends on your priorities around value, timing, control, legacy and future involvement.
For more information, visit our Employee Ownership Trust page or read What Does Employee Ownership Trust Mean in the UK?.
If you are comparing different succession options, our Management Buyout vs Employee Ownership Trust article explains some of the key differences.