EOT vs Trade Sale: A Realistic Comparison for UK Business Owners

The 2024 Autumn Budget changed the EOT calculation significantly. The capital gains tax exemption for qualifying EOT sales remains, but the rate gap between an EOT exit and a trade sale has narrowed considerably. Meaning the financial case for choosing an EOT over a trade sale is no longer as clear-cut as it once was. If you are weighing up your options, this article sets out an honest comparison of both routes, including where each genuinely makes sense and where it doesn't.

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What has changed about EOTs since the 2024 Budget?

Employee Ownership Trusts were introduced in 2014 with a deliberately attractive tax structure. Shareholders selling a qualifying majority stake to an EOT paid zero capital gains tax on the proceeds. That remained the headline incentive for a decade.

The October 2024 Budget left the CGT exemption intact, but made two meaningful changes. First, the government confirmed that EOT sellers will now be subject to income tax on any "excess consideration". Broadly, where the purchase price exceeds market value as independently determined. Second, and more broadly relevant, the Budget raised standard CGT rates: the lower rate on shares moved from 10% to 18%, and the higher rate from 20% to 24%, effective from 30 October 2024.

Business Asset Disposal Relief (BADR) the relief most trade sale vendors rely on for qualifying gains. Remained available, but the rate increased from 10% to 14% in April 2025, and will rise again to 18% from April 2026. The BADR lifetime limit stays at £1 million.

The net effect: the after-tax gap between a well-structured trade sale and an EOT sale has narrowed. For gains above the BADR lifetime limit, the EOT's CGT exemption still offers a meaningful advantage. For smaller transactions, the comparison is now much closer.

This article contains general information only and does not constitute financial or tax advice. Every business sale is different. Speak to a qualified UK tax adviser about your specific situation before making any decisions.

How do the net proceeds actually compare?

The table below illustrates the approximate net proceeds comparison for a hypothetical business sold for £5 million, with £1 million of base cost, using rates effective from April 2026.

Trade Sale (BADR on first £1m gain, 24% on remainder)EOT Sale (CGT exempt)
Gross proceeds£5,000,000£5,000,000
Taxable gain£4,000,000£0
CGT on first £1m gain (BADR at 18%)£180,000£0
CGT on remaining £3m gain (at 24%)£720,000£0
Total tax£900,000£0
Net proceeds£4,100,000£5,000,000

The differential here is real and meaningful. Approximately £900,000 on a £5m transaction. However, two practical factors complicate that headline gap: how quickly you actually receive the money, and whether the EOT can finance the full purchase price at all.

How does deal certainty differ between the two routes?

A trade sale to a well-funded strategic or financial buyer offers the highest level of deal certainty available. Completion funds land in your account at exchange and completion. Earn-outs aside, a clean trade sale means your capital is liquid and the commercial risk has transferred.

An EOT transaction is structured very differently. The trust acquires the shares, but the payment to you comes from future business profits. Typically distributed to the EOT over a period of three to seven years. You are, in effect, lending money to the business you have just sold. Until the trust has repaid you in full, your capital remains tied to the performance of the company.

If the business underperforms post-sale, your repayment schedule stretches or, in the worst case, you receive less than agreed. That risk is material and is frequently underplayed in EOT promotional material.

What happens to you operationally after each type of exit?

In most trade sales, particularly to a larger acquirer or a PE-backed platform, the vendor is expected to step back. You may be asked to stay for a six-to-twelve month handover period, sometimes longer if there is an earn-out tied to your continued involvement. But the expectation is transition, not continuation.

An EOT sale typically works the other way around. The trust is run by trustees (often including employee representatives and an independent trustee), but the management of the business day-to-day continues much as before. In practice, many EOT vendors remain involved as a director or paid consultant for several years post-completion. This can be exactly what some owners want. They care about the business and want to remain part of it without retaining the ownership risk. For others, who were genuinely hoping to step back and draw a line, the operational reality of an EOT can feel more like a restructuring than an exit.

How is an EOT actually financed. And why does that matter?

EOTs are almost always debt-funded. The trust borrows money. Often from the business itself, from external lenders, or a combination. To pay the vendor. The business then services that debt from its operating cash flow. This creates a structural ceiling on deal size.

As a working rule, lenders and trustees will look at roughly three to four times annual distributable profit as the maximum serviceable debt level. A business generating £800,000 EBITDA might therefore support an EOT purchase price of somewhere between £2.4m and £3.2m, regardless of what a trade buyer might pay on a strategic multiple.

This is one of the most important practical constraints on the EOT route. In sectors where EBITDA multiples are strong. Logistics, healthcare services, specialist manufacturing. A trade buyer may comfortably pay six to eight times EBITDA. An EOT is structurally unlikely to match that, irrespective of the tax saving.

When does an EOT make genuine sense?

The EOT route is genuinely compelling in a specific set of circumstances:

  1. Legacy matters more than maximising the sale price. You have built a business with a strong culture and a long-tenured workforce, and you want that to continue after you leave.
  2. The business is not particularly acquisitive. There is no obvious strategic buyer who would pay a material premium for your customer relationships or market position.
  3. Your gain significantly exceeds the BADR lifetime limit. The larger the taxable gain above £1 million, the greater the tax advantage of the EOT route.
  4. You are comfortable remaining involved for a transitional period. The business will need stable leadership whilst the trust establishes itself.
  5. The business has strong, consistent cash generation to service the repayment of the vendor loan without distress.
  6. You have a capable management team in place who can run the business independently.

When is a trade sale the stronger choice?

For many owner-managers, a trade sale will still deliver a materially better outcome overall:

  1. You want liquidity on completion. If the priority is a clean exit with cash in hand, a trade sale is the only route that delivers this reliably.
  2. A strategic buyer will pay a significant premium. Where an acquirer values your customer base, geographic presence, or sector expertise, the multiple they pay will likely exceed what an EOT can finance. Even accounting for the tax differential.
  3. The business has high growth potential that a PE-backed acquirer would fund, and you want to participate in that upside via an earn-out or rollover equity.
  4. Your gain is at or below the BADR lifetime limit. On the first £1 million of gain, BADR at 18% means an effective tax cost of £180,000. That gap does not justify the operational and financing complexity of an EOT.
  5. You genuinely want to step away and hand over operational responsibility cleanly.

FAQ

Does the EOT CGT exemption still apply after the 2024 Budget changes? Yes, qualifying EOT sales remain exempt from capital gains tax on the disposal of shares. The 2024 Budget did not remove that exemption; it introduced tighter rules around excess consideration and raised CGT rates on non-EOT routes.

How long does an EOT transaction typically take to complete? Most EOT transactions complete in three to six months from heads of terms. This is broadly comparable to a straightforward trade sale, though the documentation. Particularly trustee arrangements, valuation methodology, and vendor loan structure. Can extend this.

Can I sell only part of my shares to an EOT? To qualify for the CGT exemption, the EOT must acquire a controlling interest. More than 50% of the ordinary share capital. You can retain a minority stake, but the trust must hold the majority.

What happens to employees after an EOT sale? Employees become indirect beneficiaries of the trust, which holds shares on their behalf. They do not hold shares directly. An EOT company can also pay each employee a tax-free annual bonus of up to £3,600.

Can an EOT work alongside a partial trade sale? In some structures, a trade buyer acquires a minority stake whilst the EOT holds the majority. These hybrid arrangements are complex and relatively uncommon, but they do exist. Independent legal and tax advice is essential.

What sectors see EOT transactions most commonly in the UK? Professional services, creative agencies, engineering consultancies, and specialist business services firms feature most frequently. Typically businesses where people and culture are the primary asset and trade buyer premiums are more modest.

What is your business worth?

Whether you are leaning towards an EOT or a trade sale, the starting point is the same: you need a realistic view of what your business is worth in the current market. Use the free valuation calculator on the Succession Group website to get an indicative range based on your sector, revenue, and profitability. Before you commit to any route.