Financial Implications of Selling to an EOT

Selling your business to an Employee Ownership Trust (EOT) has become an increasingly popular route for UK business owners. It provides a succession solution that rewards staff, secures the legacy of the company, and delivers attractive financial benefits to the seller.

Understanding the financial implications of this model is essential for any owner considering an EOT as part of their exit strategy.

Tax advantages for sellers

Perhaps the most widely recognised benefit of selling to an EOT is the potential for 100% capital gains tax relief. Provided the qualifying conditions are met, business owners can sell their shares to the trust without incurring capital gains tax on the transaction. This makes the EOT route one of the most tax-efficient exit strategies available in the UK.

Payment structure and funding

EOT transactions are typically structured around a combination of upfront cash and deferred consideration. The trust often secures initial funding through bank finance or company reserves, with the balance paid over time from future profits. This staged approach allows the business to remain financially stable, while giving the seller a clear timetable for receiving full value.

Impact on company finances

Because future profits are used to repay the purchase price, cash flow planning is essential. The business must remain strong and profitable to meet its obligations to the EOT while continuing to invest in growth, staff, and operations.

Handled well, this creates a virtuous circle: employees benefit from ownership, which can boost engagement and performance, leading to healthier profits that fund the deal.

Employee benefits and tax-free bonuses

Under an EOT structure, employees can receive annual tax-free bonuses of up to £3,600 each (subject to certain conditions). This financial benefit builds loyalty and helps secure the long-term success of the business under its new ownership.

Valuation considerations

An EOT sale must be based on fair market value, supported by independent valuation. While sellers may not achieve the kind of competitive bidding seen in a trade sale, the tax relief and succession benefits often balance this. It is also worth noting that many EOT deals achieve fair value multiples when structured correctly, particularly in well-performing businesses with strong recurring income.

Weighing the financial benefits

Selling to an EOT is not just about preserving culture and continuity — it can also be a financially compelling exit route. With full capital gains tax relief, structured payments, and enhanced employee engagement, the EOT model provides both security and reward.

At EOT.co.uk, we work with owners to assess the financial, tax, and succession implications of an Employee Ownership Trust. If you are considering an EOT, contact us today to explore whether it is the right fit for your business and your long-term goals.