UK to Decrease Tax Incentive for Sales to Employee Ownership Trusts

The UK's Budget 2025 states that the government will introduce legislation in Finance Bill 2025-26 to change the current 100% tax break on the sale of a closely held company to an employee ownership trust (EOT) from a 100% exemption to a 50% exemption.

Companies with EOTs hold the shares in a special trust created to benefit employees. Employees have no equity claim stake in the company; instead, they get dividends and/or a profit share. The trusts are modelled on the EOT at the John Lewis Partnership, the iconic British department store and supermarket chain with more than 69,000 employees, which has been owned by an EOT since 1929. Companies must allocate benefits based on tenure or salary.

The law creating the EOT incentives was passed in 2014, and the idea has been spreading rapidly. There were 681 new UK EOTs in 2024, a 25% increase from 543 the year before. There are now about 2,470 employee-owned businesses in the UK, the large majority of which are EOTs, according to the Employee Ownership Association. That rate of growth, adjusting for relative population size, is about 14 times faster than the rate of new ESOP growth in the US.