Changes to EOT CGT relief and options for payment of CGT

Changes to EOT (Employee Ownership Trust) Tax Relief

On 26 November 2025, the Government announced a major change to the capital gains tax (CGT) relief for disposals to an Employee Ownership Trust (EOT). Previously, sellers disposing of shares to an EOT could benefit from 100% CGT relief, meaning no tax was due on the disposal. That changes now.

Under the new rules

• Only 50% of the gain on a disposal to an EOT will be exempt from CGT. The remaining 50% will be subject to CGT at the usual rates 24% (18% for individuals with Basic Rate Band available). This means the effective rate of CGT on an EOT sale will be 12% for the majority of sellers.
• Further reliefs such as Business Asset Disposal Relief (BADR) or Investors' Relief cannot be claimed. Only the headline rate of CGT at 18/24% will be reduced by 50% on an EOT sale.
• The portion of the gain that remains exempt at disposal will be ‘held-over’ and will only become chargeable if the EOT later disposes of its shares. (This was the case previously.)

What this means for business owners considering an EOT exit

• The sale to an EOT is no longer entirely tax-free - there is now a CGT liability at an effective rate of 12%.
• Cash flow modelling is more important than ever as clients need to know that they will have sufficient cash to settle the CGT liability.
• Each seller needs to understand their personal tax liability and consider their preferred option for the payment of taxes (full up front payment, or in instalments as explained further in this article).
• It is even more important than ever to obtain professional advice when planning an EOT disposal.

CGT Payment Options

If a CGT liability does arise, clients have two principal payment options

1. Pay the CGT in full on the usual due date

Under standard rules, CGT on an EOT disposal is due for payment by 31st January following the end of the tax year in which the gain arose. This remains the default requirement unless HMRC agrees to an alternative arrangement. It is possible to pay the CGT sooner if desired, using the online payment system.

If an individual pays all CGT upfront and doesn’t end up receiving the full consideration due, they may apply to HMRC to adjust their tax calculation as a result to ensure a refund of any tax overpaid. This is only applicable in situations where it can be demonstrated factually that some of the consideration has become irrecoverable e.g. the trading company sold to the EOT becomes insolvent and can no longer fund payments. The time limit for such a claim is 4 years from the date the consideration became irrecoverable.

2. Apply to HMRC to pay CGT in instalments

This is provided for under s.280 TCGA 1992, and related provisions, which enable HMRC to agree to enable sellers to pay their CGT in instalments. The ability to pay in instalments is usually available with HMRC consent to an individual where the proceeds they are due to receive are deferred and are to be paid in instalments over a period exceeding 18 months. Under this arrangement, 50% of each instalment of proceeds received by an individual are paid over to HMRC until the tax liability is settled in full. The tax liability does need to be paid in full within 8 years of the normal due date. This can assist sellers with their personal cash flow, especially where the EOT is funding the acquisition solely from future trading profits and the cash payable on completion to a seller is not sufficient to cover the CGT due.

Summary: continued tax advantages of EOTs

Despite this reduction in relief, the EOT route continues to offer substantial tax advantages and will continue to be the most tax-efficient exit route available for individuals disposing of shares in a trading company. For companies that may not have sufficient excess cash, good upfront analysis can determine whether a longer-term strategy to build up cash reserves is required, or whether external financing would be available to remedy this ahead of an EOT sale. A strong feasibility analysis and cash flow modelling in advance can highlight whether the CGT can reasonably be paid up front, or if sellers should take advantage of the instalment provisions under section 280 TCGA 1992.