Selling your business – is an EOT the answer?

Aug 21, 2023

You may have heard of EOTs, and how they are an option for business owners to realise the value of their business. 

An EOT is an Employee Ownership Trust, which is a trust that allows a company to become owned by its employees.

Benefits for you

If you are thinking of selling your business, selling to an EOT can be a great way to do so tax efficiently. Provided the requirements below are satisfied, you will receive CGT relief on a sale of your shares to an EOT.

What are the requirements?

  • The company must be a trading company
  • The EOT must only apply settled property for the benefit of all employees on the same terms

However, this requirement will not be infringed if an award is determined by reference to remuneration, length of service, or hours worked.

For example, if an employee bonus was determined in accordance with remuneration, the calculation could be that each employee receives a £100 bonus per £1,000 of their salary – the same basis of calculation means that the ‘same’ terms requirement is complied with. This method can also be applied on the basis of length of service, so that employees who have been with the company longer receive a more substantial bonus than employees who have only joined the company recently.

  • The EOT must obtain a controlling interest in the company

This means that in relation to the company, the EOT must be entitled to: the majority of shares, voting rights, profits available for distribution, and assets on a winding up. The purpose of this requirement is to ensure that the EOT has effective control over the company’s decisions.

The EOT must not meet this requirement immediately before the tax year in which the disposal occurs. However, the EOT must meet this requirement at the end of the tax year in which the CGT relief is claimed (and if it met the requirement at an earlier time in that tax year, it must have continued to meet it throughout the remainder of the tax year).

  • The original shareholders must have limited participation in the company

This requirement is that in the 12-months immediately after sale of shares to the EOT:

  • the person claiming CGT relief must not be a 5% shareholder of the company; and
  • the number of employees or officeholders who are 5% shareholders of the company (and those who are connected with those who satisfy this requirement e.g. relatives), must not be more than 2/5 of the total number of employees. This ratio must not be exceeded at any time in the period beginning on the sale of shares to the EOT, and ending at the end of that tax year.

For example, a company has 2 employees and 1 director who each hold more than 5% of the shares in the company. The company has 9 employees in total. The ratio here is 3/9 (33.3%). The limited participation requirement is satisfied because the ratio is not more than 2/5 (40%).

However, if one of the 9 employees is a relative of one of the 3 employees / director who hold more than 5%, that employee will be counted in the ratio. The ratio will then be 4/9 (44.4%), and the limited participation requirement will not be satisfied. CGT will therefore not be available.

CGT relief

If the above requirements are satisfied, you will pay no CGT on a sale of your shares to an EOT. This can be compared to the situation if you sold shares to a regular 3rd party buyer, where CGT would be payable at a rate of 20% on any increase in value since you originally acquired the shares. This can be a huge driving factor if you are considering selling, because you do not ‘lose’ a huge sum of the sale proceeds through tax.

How does it all work?

Firstly, a trust (EOT) is set up. The original shareholders of the company will transfer their shares to the EOT. The employees of the company will be beneficiaries of the EOT, and the shares in the company will therefore be held for the benefit of the company’s employees. The employees will need to be educated on what an EOT means for them, and the benefits of employee ownership.

The following requirements must continue to be met after the EOT has been implemented:

  • the trading requirement and all-employee benefit requirement must continue to be satisfied for the remainder of the tax year in which the sale occurs
  • the controlling interest requirement must be met at the end of the tax year in which the sale occurs (and if this requirement was met at an earlier time in that tax year, it must have continued to be met throughout the remainder of the tax year)
  • the limited participation requirement must continue to be satisfied in the 12-months after the sale occurs, and the 2/5 fraction must not be exceeded at any time in the period beginning with the sale and ending at the end of the tax year

When the trust has been set up, the company will carry on in largely the same way as it did previously. However, the company will be administered by the trust. The trustees will be responsible for ensuring the company is well led, as well as considering the needs of the employees in all decisions.

If you would like to sell to an EOT, or require further information on restructuring your business, please contact

This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

Sophie Protheroe

Sophie Protheroe

Solicitor, Corporate & Commercial

Latest News & Insights

All in a Day’s Work: Employment Podcast Series

Our Employment team bring you a monthly podcast covering all aspects of Employment law for businesses and individuals. You can browse our podcasts below…
All in a Day’s Work: Introduction to TUPE

All in a Day’s Work: Introduction to TUPE

In this episode, we discuss the basic principles of TUPE including when a transfer arises, the impact this has on employees and how best to prepare for a potential TUPE transfer.

Top Legal Insights


Contract Law

Material Breach of Contract

What is a ‘material’ breach of contract by a party to a commercial contract? This is a critical issue regularly considered by the courts. What constitutes a material breach and what are the remedies?

Property Law

Commercial Lease: The Financial impact on Landlord and Tenant

Coronavirus (COVID-19) and the restrictions now in place to control its spread, are having a significant effect on many business sectors.

Divorce and Family Law

Divorce in Lockdown: Can I get some discreet legal advice?

We have spoken to clients who are unfortunately experiencing some family issues, and would like to obtain expert legal advice, yet don’t know how...

Land & Property Dispute

Restrictive Covenants – The Price of Modification

Having identified that your land is burdened by a restrictive covenant and for the purposes of this article the covenant in question will be that only one residential building can be erected on the land. What do you do next?

Wills, Trusts and Probate

Why is having a will so important?

It is entirely up to you if and when you want to create a Will, but it is important to be aware of the consequences of not having a Will.

Award winning legal advice

Herrington Carmichael offers legal advice to UK and International businesses as well as individuals and families. Rated as a ‘Leading Firm 2023’ by the legal directory Legal 500 and listed in The Times ‘Best Law Firms 2023’. Herrington Carmichael has offices in London, Farnborough, Reading, and Ascot.

+44 (0)1276 686 222


Brennan House, Farnborough Aerospace Centre Business Park, Farnborough, GU14 6XR

Reading (Appointment only)
The Abbey, Abbey Gardens, Abbey Street, Reading RG1 3BA

Ascot (Appointment only)
102, Berkshire House, 39-51 High Street, Ascot, Berkshire SL5 7HY

London (Appointment only)
60 St Martins Lane, Covent Garden, London WC2N 4JS

Privacy Policy   |   Legal Notices, T&Cs, Complaints Resolution   |   Cookies  |   Client Feedback   |  Diversity Data



Our Services

Corporate Lawyers
Commercial Lawyers
Commercial Property Lawyers
Conveyancing Solicitors
Dispute Resolution Lawyers
Divorce & Family Lawyers
Employment Lawyers
Immigration Law Services
Private Wealth & Inheritance Lawyers
Startups & New Business Lawyers

Pay Online >

Please be aware that we have no plans to change our bank details. If you receive any indication that any of our bank details have changed please contact us before sending us any funds. We take no responsibility for monies you transfer into the wrong bank account.

© 2023 Herrington Carmichael LLP. Registered in England and Wales company number OC322293.

Herrington Carmichael LLP is authorised and regulated by the Solicitors Regulation Authority with registration number 446245.