Despite changes to Capital Gains Tax (CGT) in November 2025 on business sales to Employee Ownership Trusts (EOTs), this exit route still offers a tax favourable outcome for sellers looking to pass their business onto their employees.  In brief, there is a 50% CGT relief on a sale to an EOT when compared to a conventional share sale.

However, timing is key, so it’s important to understand when CGT becomes payable, particularly if the sale price is being paid over time in instalments.

Below you’ll find some FAQs on the CGT treatment of sales to an EOT.

How much CGT will I pay if I sell to an EOT?

If you sell shares, you’ll usually have to pay CGT on your gains.  Broadly, the gain is calculated as the difference between what you originally paid for your shares, and the amount the shares were sold for.

The usual CGT rate is 24% (though this will often be reduced by Business Assets Disposal Relief (BADR), up to a lifetime limit of £1m).

However, if you sell to an EOT, the CGT rate is only 12%.

For a £2.5m sale, EOTs therefore provide a CGT saving of approximately £240,000.  Although CGT is payable, the tax cost remains significantly lower than would apply to many alternative sale structures.

Example:

Roger is a founder of and 100% shareholder in Champion Limited.  As a founder, he paid a negligible amount for his shares.   He sells his company to an EOT for £2.5 million, so his chargeable gain is approximately £2.5 million.

• CGT on a qualifying EOT sale at 12%: £300,000

If Roger went down the traditional third party sale route, assuming he had not used any of his lifetime BADR limit, his CGT charge[1] would be as follows:

• CGT at 18% on first £1m:  £180,000
• CGT at 24% on remaining £1.5m: £360,000
• Total CGT payable: £540,000

When must I pay CGT?

In any sale scenario, it’s important to be aware of when the CGT must be paid to HMRC.  CGT is payable by 31 January following the end of the tax year in which the sale takes place.

Example:

• Champion Limited sale completes: February 2027
• Tax year ends: 5 April 2027
• CGT payment deadline for Roger: 31 January 2028

By timing your sale, you can effectively defer the tax due. Had Roger delayed the sale until 6 April, his CGT bill would not have become due until 31 January 2029. 

How should I plan my payments to manage the CGT?

For EOTs, timing and payment planning is particularly important.  This is because, in many EOT transactions, part of the purchase price is paid at completion, with the balance paid in instalments over time.

As a result, a seller may become liable for the CGT before they have received all of the sale proceeds.

Example:

Roger is keen to complete, and sells Champion Limited for £2.5 million on 1 February 2027.

He receives:

• £250,000 on completion.
• £500,000 on 31 December 2027.
• The balance over the following four years.

His CGT liability is £300,000 and becomes payable on 31 January 2028.  Assuming the £500,000 instalment is received on time, he will have sufficient funds available to meet the tax liability.

Had Roger delayed the sale till the next tax year, he would have until January 2029 to pay his CGT bill, with further income from instalment payments made during 2028.

This illustrates that the existence of CGT does not necessarily create a problem. The key consideration is ensuring the payment profile matches the anticipated tax obligations.

What if I don’t receive a payment until after the CGT payment deadline?

A seller may face a cash-flow issue where substantial instalments are not due or not payable until after the CGT payment deadline.

For example, if Roger received a £250k payment on completion, but did not receive any further payment until February 2028, his tax liability of £300,000 would fall in January 2028, but he would only have received £250,000 of his sale proceeds at that time.

This is primarily a structuring issue and should be considered when agreeing the payment timetable.

What happens if the Company ceases to be a qualifying EOT?

One of the most important situations in which CGT can become relevant is where an EOT disqualifying event occurs within 4 years following the tax year in which the transaction happens.

Examples might include:

• The company ceasing to satisfy the trading requirements.
• The trust no longer meeting the statutory EOT conditions.
• Structural changes that cause the EOT to lose its qualifying status.

Where a disqualifying event occurs, the seller may become liable to CGT at the full 24% rate, rather than the reduced 12% rate.

This means ongoing compliance following completion remains an important consideration.

Example:

Roger sells Champion Limited for £2.5 million in February 2027 (ie tax year ending April 2027) and initially qualifies for CGT at 12%.

If a disqualifying event happens before 5 April 2031, Roger’s initial CGT relief may be withdrawn.

If the sale took place on 6 April 2027, Roger’s CGT relief would be withdrawn if the disqualifying event happened before 5 April 2032.

The effective CGT cost could increase from:

• £300,000 (12%) to
• £600,000 (24%)

This amount may, however, be mitigated if Roger applied for the BADR that he would have been entitled to had the sale not been to an EOT.

This is one reason why sellers should not focus solely on the completion date but also on ensuring the company and trust continue to satisfy the EOT requirements after the sale.

What if I don’t have enough cash to pay the CGT?

Several options may be available.

HMRC instalment arrangements

HMRC may allow CGT to be paid by instalments where sale proceeds are themselves being received over time and are insufficient to cover the tax charge.

• Payments can be spread over a number of years (up to 8 years)
• Tax is paid on the basis of the receipt of the sale proceeds.  The taxpayer will need to pay 50% of the sale proceeds received to cover the tax liability.
• No interest is generally charged if the arrangement is complied with.

HMRC has provided guidance on arranging for payment by instalments here.  You should seek specialist tax advice when arranging instalment payments.

Timing the completion date

As noted above, the timing of completion will materially affect when tax becomes payable.

For example:

• Completion on 4 April 2027 results in CGT being due by 31 January 2028.
• Completion on 6 April 2027 results in CGT being due by 31 January 2029.

A difference of only a few days can therefore provide almost an additional year before the liability falls due.

What if I never get all my money?

Because EOT transactions are often funded from future profits, there is always a possibility that the company may not generate sufficient cash to pay the entire purchase price.

If this occurs, HMRC can be asked to recalculate the seller’s CGT liability based on the amount ultimately received.

Example:

Roger sells Champion Limited for a sale price of £2.5 million and initially pays 12% CGT (£300,000).

However, at the end of the repayment period, Roger has only been paid £2 million, which would have resulted in a CGT charge of £240,000.  Roger may be entitled to have his tax position recalculated and claim a refund of any CGT overpaid.

Summary on understanding the CGT for EOT’s

EOTs can still offer a favourable tax outcome.

Whilst CGT may now be payable on qualifying EOT sales, the tax treatment remains attractive compared with many alternative disposal routes. The reduced 12% rate can produce substantial tax savings, and practical solutions exist where sale proceeds are received over time.

The most important tax considerations are:

• Understanding when CGT becomes payable.
• Ensuring the deferred payment structure provides sufficient liquidity.
• Managing the risk of disqualifying events.
• Considering instalment arrangements where appropriate.
• Reviewing the impact of completion timing on tax payment deadlines.

With careful planning, an EOT can still deliver a significantly more favourable CGT outcome than a conventional share sale while avoiding unnecessary cash-flow pressures for the seller.

If you would like to speak to an EOT expert contact us at enquiries@rm2.co.uk and we can arrange a call.