A growing number of 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 prompt entrepreneurs to seek more efficient exit strategies.
New figures reveal that applications to set up EOTs — the model famously used by John Lewis — jumped 40 per cent last year, from 474 in 2022/23 to 671 in 2023/24. The data, obtained by accountancy firm RSM through a Freedom of Information request to HMRC, suggests a significant shift in how entrepreneurs are planning for succession.
EOTs allow company owners to sell a controlling stake in their business to employees, avoiding a CGT bill entirely. Under standard rules, higher and additional rate taxpayers face CGT of 24 per cent on a sale, although business asset disposal relief (formerly entrepreneurs’ relief) can reduce this to 14 per cent. However, the relief has been steadily eroded: once available on gains up to £10 million, the lifetime allowance was cut to £1 million in 2020, and from April 2026, the relief rate will rise from 14 per cent to 18 per cent.
In contrast, EOTs offer full CGT exemption and allow sellers to be paid in instalments — typically over seven to eight years — while often retaining a board seat and partial ownership. The number of people declaring a sale to an EOT on their tax return soared by 149 per cent last year, from 249 to 619.
“There’s no doubt EOTs have taken off because the tax relief is now far more attractive,” said Martin Cooper, a partner at RSM. “Sellers benefit from a zero per cent CGT rate, and they get to leave a lasting legacy by handing over the business to the people who helped build it.”
There are now more than 2,250 employee-owned businesses in the UK, according to figures from the White Rose Employee Ownership Centre and the Employee Ownership Association. Alongside John Lewis, other well-known EOT-run companies include Richer Sounds and Riverford Organic Farmers.
While the tax advantages are a major draw, supporters of the model also highlight benefits for employees and long-term business performance. Research suggests employee ownership can boost productivity and engagement, with staff having a direct stake in the company’s success. The trusts are typically overseen by a board of trustees, including company executives, employee representatives and often an independent professional trustee.
The increase in EOT sales comes against a backdrop of higher taxation for business owners. In addition to the CGT changes, Chancellor Rachel Reeves has announced national insurance reforms that will increase the contribution rate from 13.8 per cent to 15 per cent, and lower the employer threshold from £9,100 to £5,000 — a move expected to raise £25 billion annually.
Those tax pressures are encouraging owners to explore alternatives to traditional trade sales or private equity deals, particularly as EOTs offer a way to reward employees while avoiding hefty tax bills.
Cooper said many owners are also motivated by values as well as numbers: “It’s not just about tax. It’s about continuity, culture, and confidence that the business will be run by people who truly care about it.”
With the next rise in CGT rates due in April 2026, advisers expect a further uptick in EOT sales over the next 18 months, as more entrepreneurs move quickly to secure a tax-free exit.
