It’s now a year since the Government announced a series of amendments to the Employee Ownership Trust (EOT) legislation in the October 2024 Budget, following the first decade of the model’s success. Far from disrupting the steady growth of employee ownership, these changes have clarified, strengthened, and legitimised the model — ensuring that the generous tax reliefs are used as intended, and that employee ownership continues to mean exactly what it says.
Employee ownership models have been around for a very long time – indeed retailer John Lewis became employee-owned in 1929 and engineering firm Arup in 1974. However, there was no template model and companies looking to adopt this more or less had to reinvent the wheel every time! And doesn’t this speak volumes for trailblazers such as Clansman Dynamics, Gripple, Parfetts who all converted to employee ownership without the advantage of tax breaks or model documents!
Recognising the proven benefits of the employee ownership model, the Coalition government of 2010 were determined to make it easier for companies to transfer ownership to their employees. The Nuttall Review in 2012 set the pathway and in 2014 the Employee Ownership Trust was introduced. The success of the model is unarguable: it’s estimated that in 2014 the number of employee-owned firms in the UK was around 150. Today the figure is thought to be in excess of 2500.
When the EOT structure was first introduced in 2014, it transformed business succession in the UK. It provided a framework for the employee owned structure which made the transaction simpler (and often less expensive in terms of professional fees) and also brought significant tax benefits. Many business owners considering succession saw the EOT as an alternative to trade sales or private equity — one that safeguarded culture, jobs, and independence, while rewarding the seller for their investment and risks. With its popularity came complexity, and over time, HMRC noted examples of transactions designed to exploit the Capital Gains Tax exemption without embedding genuine employee ownership.
The 2024 amendments tackled that risk head-on. They introduced measures such as the UK residence requirement for trustees, restrictions on overseas control, and tighter definitions around the ‘controlling interest’ and ‘trustee independence’ tests. Importantly, there are now strict rules around the valuation. The valuation must be independent of the sellers, and the Trustee Board must take all reasonable steps to ensure that the price is not more than a fair market value.
These reforms close loopholes and deter shareholders whose primary motive is short-term tax planning rather than genuine succession. That’s good for the sector. By setting higher standards, the legislation protects the credibility of every EOT-owned business that truly lives its values.
Importantly, these amendments were not designed to limit employee ownership — quite the opposite. HMRC’s decision to refine, not remove, the model signals clear Government confidence in EOTs as a mainstream, trusted ownership solution.
The core advantages remain unchanged:
• No Capital Gains Tax for selling shareholders (where the trust meets qualifying conditions).
• Income Tax–free bonuses for employees (up to £3,600 annually).
• Long-term independence and continuity for the business.
The difference now is that the structure is more robust. The rules ensure that companies entering employee ownership are doing so for the right reasons — to secure their future, reward their teams, and protect their legacy.
Perhaps the most significant practical impact of the 2024 reforms is on the Trust Board itself. The new requirements around independence, governance, valuation and oversight mean that trustees now carry even greater responsibility.
The EOT trustee must ensure that:
In short, trustees can no longer be treated as passive overseers — they must be active, informed, and independent participants in the governance of the business. This places real emphasis on getting the right people around the Trust Board table: individuals with the judgment, integrity, and courage to ask difficult questions and make principled decisions, putting employees interests first.
As the EOT sector matures, governance maturity is becoming its defining characteristic. Many businesses are now adding independent trustees or non-executive directors to reinforce oversight and ensure objectivity. Some are actively seeking acquisitions to strengthen the business and grow their employee owned family. Many are leading initiatives on fair pay, wellbeing at work, personal development and better business.
These developments are healthy. They reflect the sector’s evolution from a niche succession tool to a mainstream model of ownership that demands transparency, accountability, and professionalism — just like any other form of corporate ownership, but with values at its heart.
One year on, it’s clear that the 2024 amendments have strengthened the EOT model rather than constrained it. They have reaffirmed that employee ownership is a structure built on purpose, not privilege — designed for those who truly want to share the rewards and responsibilities of business success whilst contributing to a sustainable economy.
As advisers, trustees, employee owners and leaders, our collective challenge now is to ensure that every EOT continues to embody that vision: fair, transparent, and genuinely for the benefit of all employees.
Employee ownership has never looked more credible — or more resilient.
Scotland based employee ownership specialists.
