The rise of Employee Ownership Trusts: a strategic succession route for UK owner managers

Alistair Aird, Corporate Finance Director, Carpenter Box

Over the past decade, Employee Ownership Trusts (EOTs) have evolved from a niche exit option into one of the most compelling succession strategies available to founder owned businesses in the UK. An Employee Ownership Trust is a UK government-backed initiative designed to foster employee ownership by enabling business owners to sell a controlling interest in their company to an all-employee trust. This structure means employees do not directly own shares, but the trust holds them for their collective benefit.

Explosive growth and sector momentum

According to the latest figures from the Employee Ownership Association and White Rose Employee Ownership Centre, as of mid 2025 there are approximately 2,470 businesses operating under EOT or employee owned models in the UK, employing around 358,000 people.

With 560 EOT transactions recorded in 2024 and an additional 118 already underway in early 2025, momentum shows little sign of slowing.

While owner managers in professional services lead adoption (accounting for 28% of EOT firms), manufacturing, construction, wholesale/retail and administrative services are close behind. Notably, construction firms have seen a staggering 6,580% growth since 2014, highlighting how a wide range of owner managed SMEs are now exploring this model as an exit route.

Why owner managers are choosing EOTs

1. Exceptional tax benefits

The headline attractor for many owners is the ability to sell 51–100% of company shares to the EOT and claim 100% relief from Capital Gains Tax, provided important HMRC conditions are met. At a time when Business Asset Disposal Relief is being tightened and CGT rates have risen to 24%, an EOT offers clarity and potentially substantial tax savings.

2. Legacy preservation and private transition

For business founders motivated by culture and continuity, EOTs avoid the risk of selling to strategic buyers or private equity firms who may disrupt operations post-exit.

Owner managers can either stay in the business as director employees, step back gradually or transition to just an advisory role, as their succession plans evolve. The off market nature of the sale avoids staff unrest or speculative buy-out approaches, delivering a smoother transition process.

3. Motivating and retaining staff

Research shows EOT businesses outperform peers significantly in employee engagement, retention, and productivity. Research suggests up to a 50% reduction in staff turnover, while nearly 70–73% of EOT firms see increased job satisfaction within two years of transition. Company loyalty, discretionary effort, and discretionary innovation all rise when staff have a tangible stake in success.

Importantly, about 57% of transitioning EOT firms report increasing profits, and they are over 25% more likely to see growth than comparable traditional businesses.

Considerations and governance risks

While the upside is compelling, EOT transitions carry complexities:

• Financial planning is critical. Vendor financing may impact cash flow and create debt burdens.

• Governance oversight is increasingly regulated. Reforms introduced in the October 2024 Budget strengthen requirements around independent trustees, UK-resident governance, and clawback periods to ensure genuine employee interest representation.

• Upfront costs can reach tens of thousands for valuation, tax and legal work though it is worth noting that this is normally a much cheaper route than an external sale.

• Owners must weigh up whether EOT proceeds represent best value compared to Private Equity or trade sale offers.

Looking ahead

In a tough M&A environment, the outlook for EOT adoption continues to brighten:

• The EO sector is forecast to reach over 5,000 businesses by 2030, fuelled by growing awareness and supportive policy.

• Adoption is diversifying beyond professional services and manufacturing into retail, food & drink, healthcare, tech and creative industries.

• Hybrid models, combining partial EOT shareholdings with founder retention or minority direct employee share ownership, offer more flexibility for phased owner exit plans, though need careful consideration and tax planning.

• Governance structures are expected to professionalise further; more firms will bring on independent trustees, employee representation at board level, and transparent communication strategies to safeguard long-term success.

Final thoughts for owner managers

As an owner manager, deciding how to exit is often as much about legacy as commercial calculation. EOTs offer a clear, tax-efficient route that aligns with values of stewardship, employee empowerment, and long term stability, though it is not always the answer.

When done carefully, with professional guidance, prudent cash flow planning, and attention to governance, and for the right reasons, an EOT can deliver a win win outcome: you realise fair value, secure your business’s future identity, and enable employees to thrive as co-owners.

However, it is crucial to recognise that simply establishing an EOT does not automatically guarantee deep employee involvement or engagement. Initial employee roles in the conversion process can sometimes be limited, and the trust’s ongoing role in governance can vary. For the full benefits of employee engagement to materialise, active efforts are required to build a true culture of ownership. This includes designing clear governance structures, ensuring employee voice is genuinely heard, and implementing robust communication and education programmes.

If you’d like help considering whether an EOT is right for your business, please get in touch with our team on 01903 234094.