Capital gains tax (CGT) relief on disposals to employee ownership trusts (EOT) has been reduced to 50 per cent, effective from November 2025, the government has announced.

In the Budget, the Treasury revealed that CGT relief on disposals to EOTs would be cut from the previous level of 100 per cent.

Company owners who had been making qualified disposals of shares to the trustees of an EOT had previously benefited from 100 per cent relief on CGT.

However, under new rules, 50 per cent of gains will be treated as chargeable and be subject to CGT.

The Office for Budget Responsibility (OBR) estimated that this will raise £900m a year on average from 2027/28 onwards.

“An EOT is a way for employees to share in ownership of a company,” noted Financial Software Ltd tax reporting analyst, Alex Ranahan.

“For the EOT to take effect, the owner must transfer their shares into the EOT. Ordinary principles of CGT would say this is a chargeable disposal, but a 100 per cent relief is given provided that various conditions are met.

“The Budget puts in place an immediate reduction in the tax relief to 50 per cent. The policy intent here is odd given one would expect employee ownership to be important to the labour and co-operative movements, and the forecast revenue raised is also only £0.9bn per year.

“Really, this just means that fewer company owners may try the EOT model, and that those who do will enjoy less tax relief – perhaps the government’s thinking is the current setup is too generous?”

Utmost Wealth solutions head of UK technical services, Simon Martin, added: “With the Chancellor on the hunt at this Budget for tax rises to help plug the fiscal hole – largely borne by the shoulders of the wealthiest – it is no surprise that the CGT regime has been revisited, including the reduction of capital gains relief on disposals to employee ownership trusts from 100 per cent to 50 per cent.

“These further changes could materially impact behaviours around investment. Those affected will need to act swiftly, reassessing and adapting their financial plans to navigate the UK’s evolving tax environment.”

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