Register to get free articles
Want unlimited access? View Plans
Already have an account? Sign in
Family businesses are increasingly moving towards employee ownership trusts (EOTs) following reforms to UK business relief regulations, according to Gerald Edelman.
The forecast comes as major reforms introduced in November 2025 leave family-run operations facing higher inheritance tax liabilities. Company owners are looking to minimise exposure when selling or handing down their firms, driving interest in trust structures to adjust their long-term succession planning.
To establish an employee ownership trust, owners must sell the majority of company shares to trustees for the benefit of the workforce. Figures from the Employee Ownership Association show there are currently almost 2,500 such trusts operating across the country.
Amal Shah, tax partner at Gerald Edelman, said: “With IHT relief significantly eroded, family businesses need to think very carefully about what comes next. The main options are selling, a management buyout, passing to family, or winding it down.
“A sale is usually the clearest way to unlocking value and, within this bracket, EOTs still offer many advantages, even though the tax position has changed. This is why we believe EOTs will keep rising.”
Shah added: “Since November 2025, sales to an EOT now qualify for 50% relief from Capital Gains Tax, down from a full exemption, giving an effective CGT rate of around 12%. Despite this, they are still an attractive proposition.
“EOTs offer a defined succession path without requiring an external buyer, which suits owners where legacy and cultural continuity matter alongside financial return. A structured sale process takes longer – it’s designed to create competitive tension and maximise value – whereas an EOT provides more certainty of outcome and spreads consideration over time. Both are legitimate routes and the right choice depends on what the owner is optimising for.”
Shah continued: “To be successful, the owner needs to feel comfortable handing over because, whilst they can retain up to 49%, the board will ultimately control the company. For business owners who care about preserving their business culture, legacy and looking after their people, it is an appealing prospect. People who work for companies that are employee owned are typically very happy employees.
“Where business relief was once seen as quite predictable, it is increasingly becoming a matter of judgement. HMRC is scrutinising claims more closely and assumptions made by owners around eligibility for relief can lead to nasty shocks. To be in the best position at the point of exiting a family business, planning up to five years ahead is invaluable. This allows enough time to strengthen the business, develop your team and resolve any structural or stakeholder issues so that when it comes to transition, it can be a smooth process.”
