Employee ownership boom cools as tax clampdown slows sales to staff

After a decade of rapid growth, Britain’s employee ownership movement is hitting the brakes. New tax rules introduced in last year’s Budget have curbed the number of business owners selling to their staff, following a clampdown on offshore trusts used to sidestep capital gains tax (CGT).

The Employee Ownership Association (EOA) reports that company sales to employee ownership trusts (EOTs) fell from 550 in 2024 to just 200 in the first eight months of this year. The total is now expected to reach around 350 for 2025 — a drop of more than a third.

Fresh figures from HM Revenue & Customs, obtained by accountancy firm Price Bailey, back up the trend. Only 104 EOTs were cleared by HMRC in the three months to June, the lowest level since early 2022.

Experts say the decline follows reforms designed to close tax loopholes exploited by some sellers. Previously, company owners could transfer their businesses to offshore EOTs, whose trustees would quickly resell the company to another buyer, allowing the original owners to pocket the proceeds tax-free.

The government’s new rules now ban offshore structures and introduce a tougher four-year “clawback” clause, meaning sellers could lose their CGT exemption if the company is sold on within four full tax years — up from just one.

James de le Vingne, chief executive of the EOA, said the slowdown “serves as a reminder that despite a decade of learning, education and insights driving growth, greater alignment of employee ownership succession with business support and regional growth plans is still needed to unlock the full opportunity of people-powered growth.”

EOTs were first introduced in 2014 to promote the John Lewis model of shared ownership, offering 100 per cent CGT relief to sellers who pass control to their employees. Since then, the number of such trusts has soared from a few hundred to around 2,500, including well-known firms such as The Entertainer, Go Ape and Richer Sounds.

Robert Postlethwaite, founder of Postlethwaite Solicitors and a leading expert on employee ownership, said that while the new rules had cooled activity, the long-term picture remained positive.

“Some owners used EOTs purely as a tax-efficient exit — that’s no longer the case,” he said. “Those now pursuing employee ownership tend to be genuinely committed to it as part of their company’s future, rather than simply looking for a tax-free escape route.”

He expects the pace to pick up again as more business owners approach retirement: “There are so many companies needing a succession solution, and EOTs will remain an important option.”

Simon Blake, a partner at Price Bailey, described the latest reforms as “the most consequential change to the EOT regime since its introduction,” adding that the four-year rule “fundamentally alters the risk calculus — transforming what was once a frictionless exit into a compliance marathon.”

Despite the slowdown in conversions, the EOA has continued to expand, adding 210 new members in the year to September. The professional, scientific and technical sectors accounted for the largest share of new entrants, followed by IT, manufacturing and construction — evidence that, while the tax breaks may be less generous, interest in shared ownership remains strong.