HMRC Clarifies CGT Changes for Employee Ownership Trusts

Following the Autumn Budget’s reduction in Capital Gains Tax (CGT) relief for Employee Ownership Trusts (EOTs), there has been understandable uncertainty among business owners considering employee ownership as a succession route.

As members of the Employee Ownership Association (EOA), we closely follow developments affecting the employee ownership sector. In response to the recent changes, the EOA has met with HMRC and the Department for Business and Trade to gain much-needed clarity on how the new rules will work in practice.

 

What’s Changed and What does It Means for Business Owners?

The key areas of concern raised by advisers and business owners were:

• How CGT will now be paid following an EOT sale.
• What happens if the business underperforms and the deferred consideration cannot be fully paid?
• Whether the four-year clawback period still makes sense given the reduced tax relief.

Encouragingly, HMRC has confirmed that sellers to an EOT can still apply to pay CGT in line with the instalments they receive, rather than all at once. This provides important reassurance for founders who may be relying on future company performance to fund their exit.

HMRC has also clarified that where part of the deferred consideration later becomes irrecoverable, for example, if a company fails, vendors may be able to recalculate the tax due, ensuring they are not taxed on money they never received. You can read HMRC’s statement here.

 

Ongoing Discussions with Government

While some issues, such as the four-year clawback period, would require legislative change, discussions are continuing with HM Treasury and the Department for Business and Trade. The government has reiterated its commitment to growing the co-operative and mutual economy, which includes employee-owned businesses.

A formal submission to the Department for Business and Trade’s Call for Evidence is also underway, aimed at shaping future policy and removing barriers for companies considering employee ownership.

Why does This Matters?

Although CGT relief for EOTs has been reduced, these latest developments show that employee ownership remains a viable and attractive succession option. With the ability to:

• Spread tax payments over time.
• Protect sellers where payments fall short.
• Align exit planning with long-term business stability.

The EOT route continues to offer both financial and cultural advantages for the right business.

You can read our blog exploring this topic in more depth: Employee Ownership Trusts: Are They Still Worth It?  here.

 

Get in touch

At TC Group, we specialise in supporting businesses on their journey to employee ownership, and if you’d like support with reviewing whether an EOT remains the right fit for you and your business, or to explore alternative succession strategies, we’re here to guide you through opportunities and complexities with practical, tailored advice.

To find out how we can support your business, please fill in the form below.