In the 2025 Autumn Budget, the Government announced it was restricting the amount of capital gains tax (CGT) relief available on qualifying disposals of shares made to the trustees of an Employee Ownership Trust (EOT).
With immediate effect from 26 November 2025, the CGT relief was reduced from 100% to 50%.
This means that 50% of the gain on disposal will be treated as the disposer’s chargeable gain for CGT purposes. The remaining 50% will not form part of the disposer’s chargeable gain. Instead, that 50% will be held over and deducted from the trustees’ acquisition cost so that it will come into charge on any subsequent disposal or deemed disposal of the shares by the trustees.
Business Asset Disposal Relief and Investors’ Relief will not be available on disposals where relief has been claimed.
What is an Employee Ownership Trust?
An EOT is a corporate ownership structure whereby a controlling interest in a company is held by all-employee trust which is held for the benefit of employees. They were established in 2014 to promote employee ownership and, to encourage adoption, tax reliefs were introduced by the Finance Act 2014 at the benefit of the selling shareholders.
According to the Employee Ownership Association’s July 2025 Employee Ownership Sector Snapshot, there are just under 2,500 employee-owned businesses currently in the UK.
Why did the Government do this?
The Government said that the measure promoted “fairness,” by ensuring that those who dispose of shareholdings to the trustees of an EOT pay some tax on their gains, whilst also retaining a “significant incentive” by charging a lower effective rate of tax on these disposals compared to other disposal routes.
In addition, the Government’s accompanying policy paper noted that cost of the prior 100% CGT relief had increased significantly in recent years. It explained that the original costing from 2013 suggested the entire EOT tax regime would cost less than £100 million by 2018/19. However, the cost of the CGT relief alone reached £600 million in 2021/22 and forecasts suggest costs could have rises to £2 billion – more than 20 times the original costing – by 2028/29 without any action.
How much revenue is the measure predicated to raise?
The Office for Budget Responsibility (OBR) expect the measure will raise an extra £985 million for the Exchequer by 2030/31. The OBR said this figure takes into account any behavioural changes as a result of the measure, such as individuals mitigating their CGT liability through holding on to shares longer before realising gains.
What will the impact be on CGT receipts overall?
According to the OBR, CGT receipts are expected to raise £20 billion in 2025/26, up 50% from 2024/25. The public body said the predicated rise in receipts was due to evidence of an increase in disposals in 2024/25 to.
In the 2024 Autumn Budget, Chancellor Rachel Reeves announced that the main rates of CGT would be increasing with immediate effect. The higher rate of CGT increased to 24% from 20%, and the lower rate rose to 18% from 10%. In response to the rumours that rates were changing, many individuals chose to dispose of assets ahead of the Budget to benefit from lower rates.
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