More and more business owners are turning to employee ownership trusts (EOTS) to sell their companies tax-free as changes to capital gains tax (CGT) rules and rising national insurance costs are driving entrepreneurs to seek more effective exit strategies.
New figures show that applications that build EOTS (the model that John Lewis famously used) jumped 40% last year, from 474 in 2022/23 to 671 in 2023/24. Data obtained by accounting firm RSM through the degree of freedom of information provided to HMRC show that there has been a significant shift in the way entrepreneurs plan inheritance.
EOTS allows company owners to sell shares of their business control to employees, thus avoiding CGT bills altogether. Under the standard rules, taxpayers face 24% of CGT in sales, while commercial asset disposal relief (formerly known as entrepreneur relief) can reduce it to 14%. However, this relief has steadily eroded: once a gain of up to £10 million is obtained, lifetime allowances will be cut to £1 million in 2020, and the relief rate will rise from 14% to 18% from April 2026.
By contrast, EOTS offers a comprehensive CGT waiver and allows sellers to pay in installments (usually seven to eight years), while often retaining board seats and partial ownership. The number of people selling EOTs on tax returns last year ranged from 249 to 619.
“There is no doubt that EOTS has taken off because the tax cuts are now more attractive,” said Martin Cooper, partner at RSM. “Sellers benefit from zero percent CGT rates and they can leave a lasting legacy by handing over the business to those who help build.”
According to the White Rose Employee Ownership Centre and Employee Ownership Association, there are now more than 2,250 employees-owned businesses in the UK. Along with John Lewis, other well-known EOT operating companies include Richer Voice and Riverford Organic Farmers.
While tax advantages are the main attraction, proponents of the model also highlight employee benefits and long-term business performance. Research shows that employee ownership can increase productivity and engagement, while employees directly own the success of the company. Trusts are usually supervised by the board of directors, including company executives, employee representatives, and often independent professional trustees.
The increase in EOT sales is in the context of higher taxes from business owners. In addition to the changes in CGT, Prime Minister Rachel Reeves announced the national insurance reform that would raise from 13.8% to 15% and lower the employer threshold from £9,100 to £5,000, with an expected £25 billion a year.
These tax pressures encourage owners to explore alternatives to traditional trade sales or private equity transactions, especially when EOTS provides a way to reward employees while avoiding tax expenses.
Many owners are also motivated by values and numbers: “It’s not just taxation. It’s about the continuity of operations, culture and confidence that people who really care about it are about the business.”
As the next CGT rate rises in April 2026, consultants expect EOT sales to rise further as more entrepreneurs act quickly to ensure tax-free exports.
