When Chancellor Rachel Reeves unveiled the 2025 Autumn Budget, the headlines were dominated by higher taxes, a mansion-tax pledge and measures to relieve the pressure on public services. But tucked away in the fine print was a significant change to how business sales to Employee Ownership Trusts (EOT) are taxed and regulated. The government announced that Capital Gains Tax relief on those shares would be cut from 100% to 50%, a move designed – as the Chancellor said to the Commons – to “retain a strong incentive for employee ownership while ensuring business owners pay their fair share.”
The announcement landed at a moment when interest in employee ownership is already rising quickly. Once a relatively niche option, EOTs have become a mainstream part of succession discussions across the mid-market. Demographics play a large role as many founders who built their businesses in the 1980s and 90s are reaching the point where stepping back is unavoidable, and they are increasingly searching for routes that protect culture as much as capital. In 2018, the UK had fewer than 200 Employee Ownership Trusts, but by mid-2024, that total exceeded 1,700, with more than 540 new transitions in the past year alone. Today, around 6% of all UK business transfers happen via an EOT, a figure that would have seemed improbable just a few years ago.
Much of the appeal lies in the clarity of the model. An EOT acquires a controlling stake in a business and holds it for the long-term benefit of employees. Until the Autumn Budget revision, founders paid no Capital Gains Tax on qualifying sales, and employees could receive up to £3,600 in income-tax-free bonuses each year. As Patrick Lewis, former CFO at John Lewis Partnership and President of the Employee Ownership Association, told me: “As a model, it is attractive for a number of reasons, but the tax relief certainly accelerated it.”
“In 2018, the UK had fewer than 200 Employee Ownership Trusts, but by mid-2024, that total exceeded 1,700, with more than 540 new transitions in the past year alone.”
As interest has grown, the range of sectors exploring the model has expanded with it. Professional-services firms were early adopters, but the system has travelled well beyond them. Retailers in particular – including The Entertainer, Gift Universe, Parfetts and Richer Sounds – have embraced employee ownership because the connection between motivated staff and customer experience is immediate. As Patrick puts it, employee ownership “builds loyalty and a different organisation,” enabling companies to “dig deep and fight through difficult situations” in ways investor-owned structures often do not.
That link between culture and commercial performance is something Paul Kraftman, CEO of Gift Universe, has seen first-hand. Since transitioning to employee ownership in November 2022, he told me that staff retention “has grown from 58% to 75%, which for retail business is really, really high.” For a sector where turnover is often a defining challenge, that kind of stability helps preserve customer experience and store-level consistency which are attributes retail businesses depend on.
This cultural resilience can become even more important when trading conditions are challenging. Research from both UK EOTs and US ESOPs shows that employee-owners are more willing to adjust by shifting roles, reducing costs or making temporary compromises in order to protect the long-term health of the business. With less pressure from external investors and a clearer shared purpose, these firms often make steadier decisions under stress.
“An EOT is kind of like a family business in feel, so it suits continuity.” – Paul Kraftman, CEO, Gift Universe
Employee ownership is not without complications. Governance can be messy in the early stages, particularly while trustees, leadership teams and employee committees work out how decisions are shared. Progress can slow, and bonuses may take time to appear if the business is still repaying the debt used to fund the transition. As Paul observes, belief in the model deepens once employees see tangible benefits: “Once we started paying the bonuses, people thought: ‘This is actually real’. Two or three grand tax-free is very significant.”
Financing can present further challenges. Some banks are familiar with the structure and supportive; others remain hesitant. This can lead to slower decisions or less favourable terms. The model tends to work best for businesses with predictable cashflow, whereas companies that rely heavily on rapid reinvestment or external capital may find it harder to make an EOT viable. Patrick explains: “Employee Ownership Trusts can be difficult to achieve because most businesses need capital to fund them. Understandably, the capital provider wants a return which can force some businesses down a different path. But if you can make it work, giving your employees a full stake in the business is very powerful.”
As adoption grows, the ecosystem around employee ownership is changing too. Advisory firms are merging or broadening their services to cover the full succession journey, and lenders are gradually becoming more confident with EOT financing. Patrick tells me: “Once banks, lawyers, consultants and accountants have had a couple of experiences with the model, they become much more engaged as opposed to either not suggesting it, or not running with it when it’s suggested by somebody else.” What was once a specialist corner of the market is now a meaningful part of mid-market succession planning.
“If you can make it work, giving your employees a full stake in the business is very powerful.” – Patrick Lewis, CFO, John Lewis Partnership
Demand for credible succession options is only going to intensify. Fewer than 10% of UK family businesses have a formal succession plan, yet tens of thousands will need one in the next decade. In retail especially, where many businesses remain founder-led, the pressure for alternatives is growing quickly. EOTs will not fit every company, but they are becoming a compelling route for businesses that want cultural continuity, long-term stability and a smoother transition for employees.
Looking ahead, several trends are already taking shape. Some founders who would once have turned to private equity are opting for EOTs to protect the character of their organisation and keep key decisions close to the people who built the business. Paul captures this sentiment clearly, telling me: “Going a traditional route can cause disruption for family businesses in particular. For example, if we had gone to private equity, there would have been a very different culture created to the one we had built the business on. But an EOT is kind of like a family business in feel, so it suits continuity.”
Ultimately, the rise of EOTs is about more than structure or tax. It reflects a deeper shift in how leaders think about legacy, stewardship and the value created by the people inside a business. For many founders, this is the first succession model that aligns both the commercial future and the cultural soul of their organisation. And for employees, it offers something that is rare but becoming less so: a true stake in what comes next.
