Capital gains tax (CGT) relief for owners selling their businesses to employee ownership trusts (EOT) will be slashed from 100% to 50%, effective immediately.
The change is intended to "retain a strong incentive for employee ownership while ensuring business owners pay their fair share", according to Chancellor Rachel Reeves.
It comes as the scheme was "on course" to cost £2billion, 20 times beyond the original costings when the scheme was it was first announced in 2013, according to the government's Budget 2025 policy paper.
Ritchie Whyte, Partner and Head of Corporate and Business Advisory at Aberdein Considine, said the move will have a big impact on business succession planning.
He said: “Disposals of businesses by owners to Employee Ownership Trusts (EOTs) was gaining increased traction over the past few years. Following yesterday’s Budget, changes to tax relief for disposals of shares to EOTs fundamentally alters the financial calculus for owners considering this succession route.
"Reducing capital gains tax relief on EOT disposals from 100% to 50% - for transactions completed on or after 26 November 2025 - significantly impacts the net proceeds available to selling shareholders. What was previously a tax-free, straightforward exit is now subject to a materially higher tax burden. For many owners, this shift inevitably makes an EOT less attractive when compared to alternative succession or sale strategies."
He added: “As well as the impact on exit opportunities for business owners, businesses and employees will also be penalised by measures in the Budget, including the mileage charge for electric vehicles (from April 2028) and introduction of National Insurance contributions on pension payments above £2,000 (from April 2029).
“These changes add cost and complexity at a time when businesses need stability and support, and it is understandable that business owners and employees will want to pause to reassess their plans considering these developments.”