The EOT Is Dead!

Why the new 50% tax-free allowance resets expectations and strengthens proper exit planning.

The Government’s sudden reduction of the Capital Gains Tax exemption for Employee Ownership Trust (EOT) transactions from 100% to 50%, with immediate effect, has raised eyebrows across the SME sector. For some, it feels like the end of an era. For others, it’s a welcome correction.

But one thing is certain: the EOT structure is very much alive, and for the right businesses, it remains a strong, dependable option.

This shift has not destroyed the model, it has simply stripped out the distortion. The businesses that were always suited to employee ownership will continue to see the benefits, while those flirting with an EOT purely for tax reasons will now look elsewhere.

In that sense, the change is both straightforward and healthy.

A positive correction to an increasingly unbalanced market

For the last few years, the 100% tax exemption overshadowed the real purpose of an EOT. Many advisers tried to sell the structure based solely on the tax outcome, ignoring the core aim:

• employee stability

• cultural continuity

• long-term stewardship

• protecting the identity of the business

Reducing the exemption to 50% removes the temptation to pursue an EOT for the wrong reasons. It pushes owners back towards the fundamentals, strategy, suitability, and long-term value, not tax arbitrage.

For many genuine candidates, the benefits are unchanged. The culture is protected. Jobs are secured. The business continues in familiar hands. The shift simply ensures that those entering the process do it with clear eyes, not tax-tinted glasses.

A levelling effect for business owners weighing up their options

Previously, some business sellers compared EOTs to trade sales on a very uneven playing field. With half the gain now taxable, strategic trade buyers who can typically offer stronger financial packages, faster payments, and reduced repayment risk are once again more competitive.

This is not bad news. It helps business owners choose based on fit, not just tax.

A well-executed trade sale can deliver:

• a higher headline value

• upfront consideration rather than long-term repayments

• industry expertise

• scale, resources, and market leverage

By comparison, an EOT offers continuity, loyalty and cultural preservation, still compelling benefits for many sellers.

The new 50% allowance simply ensures the decision is made for the right reasons.

EOTs: still right for some, still wrong for others

The tax change has not altered a basic truth: Some businesses are ideal EOT candidates, and others should never go near the structure.

Good EOT candidates still include:

• businesses with a strong culture and stable leadership

• firms with loyal teams and low employee turnover

• companies where continuity and legacy outweigh headline price

Businesses looking for maximum value, industry leverage, or fast capital extraction will now find the trade sale route even more compelling, as they should.

The change removes confusion, aligns expectations, and helps owners focus on what truly matters: the right exit plan, not the tax position.

The best exit options for business owners in 2026

Even in the new landscape, the hierarchy remains the same.

1. Strategic Trade Sale

Still the strongest option. A serious buyer with money, resources, sector experience and strategic logic will almost always produce the best combination of value, security and timing. Whether it’s a full sale or partial sale, a well-managed trade exit is extremely hard to beat.

2. Management or Employee Buyout (Including EOTs)

Industry experience without the capital. Your team knows the business better than anyone and cares about its continuity. You preserve culture, protect jobs, and hand over to people you trust. You may not secure the same price as the perfect trade buyer, but you will sleep well knowing the business is in safe hands.

3. Search Fund or Investor Buyers

No industry experience + no money and often a costly distraction. Most search funds operate with borrowed funds and limited operational background. When the buyer has no capital:

• the lender becomes the real decision-maker

• scrutiny increases

• the deal slows

• conditions multiply

To fill the funding gap, they rely on deferred payments, earn-outs, and long-tail risk. These structures transfer uncertainty directly onto the seller.

Two factors regularly kill these deals: no money and no idea.

If any business owner has meaningful alternatives such as a trade buyer or management/employee transition, a search fund buyer is rarely the right answer.

What each exit route really brings to the table

Exit Route	What It Brings to the Table
Trade Sale	Industry Experience + Money — strong capital, sector know-how, and strategic fit.
Management / Employees (including EOT)	Industry Experience + No Money — cultural continuity and internal knowledge, typically funded over time.
Search Fund / Investor Buyer	No Industry Experience + No Money — reliant on lenders, deferred payments and heavy conditions.

The message for business owners: early planning matters more than ever

The reduction to 50% does not damage the EOT option, it reinforces the need for proper exit planning.

The earlier you start, the more control you have over:

• valuations

• buyer choice

• timing

• structure

• legacy

Most successful exits start 18–36 months before the event. You can never start too early.

Final word

The EOT regime has not died, it has simply evolved. The tax change removes distortions, restores balance, and forces clarity. For the right businesses, the EOT remains a powerful and dignified exit route. For others, a strategic trade sale or employee/management deal will represent far better value.

The key is choosing the right exit path for you and your business.

Contact us today

If you are considering selling within the next three years or if you have received a direct approach from an investor or search fund buyer currently trawling the market, contact us today for a confidential, no-obligation consultation or go to EOT.co.uk

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