Gerald Edelman predicts rise in Employee Ownership Trusts following business relief changes
Changes to the UK’s business relief regime will lead to an uptick in family businesses selling to Employee Ownership Trusts (EOTs), mid-tier accountancy and advisory firm Gerald Edelman predicts.
There are approximately five million family businesses in the UK, making up 93% of all private sector firms. This includes 56% of medium-sized firms and 64% of small businesses. The succession choices made by these businesses has a profound impact on HMRC coffers.
As major reforms to business relief from November 2025 leave family-run businesses facing significantly higher Inheritance Tax (IHT) bills, owners are looking to minimise exposure when selling or handing down their operation. Experts at Gerald Edelman, a top 50 UK accountancy firm and a leader in providing advisory-led support for owner-managed, entrepreneur-led businesses, believe that the already popular EOT structure will see an uplift as business owners adjust succession planning.
To set up an EOT, owners must sell the majority of the company’s shares to Trustees for the long-term benefit of the employees. There are currently almost 2,500 EOTs in the UK, according to the Employee Ownership Association.
Amal Shah, tax partner at Gerald Edelman, explains: “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 explains: “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.
“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.”
The shift in relief has made succession planning increasingly complex making it important to consider several years ahead of any intended move, according to Shah. Having identified their priorities at the point of stepping back, business owners need to fully understand the tax position.
Shah concludes: “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.”