The Role of EOTs in Professional Services

Do EOTs have a future in UK Professional Services?

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Employee Ownership Trusts (EOTs) have emerged over the past decade as a new and attractive succession model among firms in the UK, enabling owners to transfer a controlling stake in their business to a trust that holds shares collectively on behalf of employees.

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Originally introduced to promote long-term ownership, the model gained momentum primarily because it offered a practical and tax-efficient solution to a persistent succession challenge especially in people-heavy service firms.

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That momentum has now reached a turning point. The Chancellor’s Autumn Budget decision to reduce capital gains tax relief on EOT sales from 100% to 50% changes the financial calculus that drove much of the model’s adoption. As fiscal policy tightens, EOTs move from being an attractive option to one that requires closer scrutiny alongside trade sales, private equity, and internal partner buyouts.

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The scale of adoption under the tax efficient regime highlights why this matters. In 2024 alone, 681 new EOTs were established which was a 25% increase from 543 in 2023 bringing the total number of employee-owned businesses in the UK to approximately 2,470, employing around 358,000 people. Professional services firms accounted for nearly 40% of these transitions, with architecture and engineering consultancies showing the strongest uptake, followed by management consulting and accountancy as consolidation pressures intensified. In these sectors, EOTs were rarely adopted as a statement of participatory management ideals; rather, they addressed the absence of natural buyers, the desire to preserve independence, and the need for orderly partner exits.

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For the UK professional and business services (PBS) sector in particular, this reassessment is consequential. These firms derive value primarily from human capital, client relationships, and institutional knowledge which are difficult to monetise through conventional sales without cultural or operational disruption. EOTs aligned closely with these realities, but their appeal was inseparable from the tax relief that underpinned them. As that relief is scaled back, firms must now evaluate whether the model still supports succession, retention, and long-term competitiveness under less favourable financial conditions.

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This article explores how EOTs are structured, why they became so prevalent within the UK PBS sector, and how recent tax changes alter their relevance going forward. The central question is no longer whether EOTs work in theory, but whether they continue to represent a commercially rational succession strategy in a more constrained fiscal environment.

What are Employee Ownership Trusts?

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Simply explained, an EOT model allows the owners of a company to sell a controlling stake (at least 51%) to a trust that holds the shares on behalf of all employees. Employees do not buy shares directly, instead, ownership is held collectively, and the company continues to be managed by its leadership team.

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The model draws intellectual inspiration from the retailer John Lewis, which has operated under trust-based employee ownership since 1929. However, the EOT framework introduced in 2014 was not designed to replicate the John Lewis model in totality. Instead, it translated the underlying principle of collective, trust-based ownership into a standardised legal and tax structure capable of supporting succession in SMEs and professional services firms. In that sense, EOTs represent the codification of a long-standing British ownership tradition, adapted to contemporary succession and capital constraints.

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What Has Changed and Why the Government Acted

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In the Chancellor’s Autumn Budget announcement, the government announced a significant change- the CGT relief on sales to EOTs was reduced from 100% to 50%. This means that half of any capital gain is now taxable. This would result in an effective CGT rate of around 12%, rather than 0%. The government’s stated rationale was fiscal. When EOT legislation was introduced, the expected cost to the Exchequer was relatively modest. However, uptake far exceeded early forecasts. Initial projections had estimated annual costs below £100m however, by 2021/22, the figure reached £600m, with forecasts estimating a nearly £2bn cost to be incurred by 2028/29.

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From a Treasury perspective, the relief had evolved from a targeted incentive into a material and growing tax expenditure. The decision to halve the relief reflects a broader pattern in recent Budgets: reassessing generous reliefs that scale faster than anticipated, while stopping short of abolishing them entirely. Importantly, the government did not frame the change as a rejection of employee ownership. The relief remains in place, and EOTs continue to enjoy a more favourable tax treatment than most other exit routes. The policy signal is one of recalibration rather than reversal. However, the timing and scale of the change have meaningful consequences for behaviour, particularly in sectors where EOTs had become integral to succession planning.

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This means that half of any capital gain is now taxable. This would result in an effective CGT rate of around 12%, rather than 0%. The government’s stated rationale was fiscal. When EOT legislation was introduced, the expected cost to the Exchequer was relatively modest. However, uptake far exceeded early forecasts. Initial projections had estimated annual costs below £100m however, by 2021/22, the figure reached £600m, with forecasts estimating a nearly £2bn cost to be incurred by 2028/29.

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The Role of Tax Relief and Why It Mattered

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The success of the EOT model hinged on the tax framework that supported it. Under the original legislation, shareholders selling a controlling stake to an EOT paid no Capital Gains Tax (CGT) on the sale. This 100% relief made EOTs financially competitive with mergers and acquisitions and arguably more attractive. For professional services firms, this mattered for three reasons.

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First, it made deferred exits viable. Most EOT transactions are funded over time, using the future profits of the business. Without tax relief, sellers could face a significant tax bill before they had received sufficient cash from the transaction. Secondly, EOTs offered a structured internal alternative where the ownership remained in-house and firm’s leadership continued uninterrupted, this was preferred over a rushed sale in case of succession crises.

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Employee Ownership Trusts were originally designed to let partners sell a controlling stake in their firm to a trust on behalf of all employees, with the trust paying for those shares over time out of future profits rather than requiring junior partners to take on personal debt. In that structure, sellers could claim full CGT relief, so they did not face an immediate tax bill while their buyout was still being paid down in instalments. The new effective CGT rate of around 12% changes that dynamic: exiting partners can now incur a tax liability as soon as the EOT transaction completes, even though much of their consideration will only be received years later through deferred payments. This brings forward the tax burden relative to the cash actually received, tightening personal cashflow and making EOT-funded buyouts less attractive than before. For many existing businesses, especially those that had been weighing EOTs primarily for their tax efficiency, this added friction reduces the appeal of the model and may push them back toward traditional partner buyouts, external sales or simply postponing succession decisions.

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What This Means for UK Professional Services

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While EOTs were initially viewed as a niche model, they quickly gained traction in professional services particularly in architecture, engineering, consulting and accountancy. These firms were well suited for this model since they were people-led rather than asset-heavy, driven by long-term client relationships, and largely owned by partners who would retire leaving questions over succession. These sector specific factors narrowed down traditional succession routes like partner buy-ins, which required junior partners to usually take on personal debt to finance their buy-ins. Alternatives, like trade sales and mergers, involve the sale of the firm’s entire business to another firm, and risk hamper the well-founded unique character and culture of the firm which clients and high-performance employees are used to and expect.

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Through EOTs there was an exciting opportunity for founding partners or senior partners could exit the firm, and receive their payouts over a deferred period funded by future profits and guaranteed by legal contractual obligations. The firm could continue to maintain its independence and unique character, and the ownership would be employee-aligned, providing incentives and motivation for employees to be part of the firm's future.

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The Place for EOTs in Professional Services

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Even with CGT relief halved, Employee Ownership Trusts will endure as a tailored succession route for smaller and mid-sized professional services firms—think boutique architecture studios, regional engineering consultancies, or specialist advisory practices—that place a premium on independence, cultural continuity, and long-term client relations over aggressive scaling. These firms, often 20-100 strong and rooted in niche expertise, derive real value from EOTs' intrinsic strengths of fostering employee retention through shared ownership, preserving decision-making autonomy free from private equity timelines, and ensuring seamless knowledge transfer without the disruption of external buyouts. Tax efficiency was the spark, but for those committed to these principles, the model delivers enduring alignment that justifies the new economic trade-offs.

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The tax benefit may no longer be decisive on its own, but it has not disappeared. When combined with the operational upside of employee alignment, talent retention, and cultural stability, the EOT remains a credible and attractive model for founders & founding teams who run established businesses, value long-term cultural planning, but haven’t ruled out a traditional exit to a strategic buyer in the mid-term.