EOT budget changes – further CGT clarification
On the 19th December 2025 the eoa posted the outcome of two meetings they’d just concluded with HMRC and the Department for Business and Trade. The purpose of these meetings was to discuss some key issues arising from the changes to the capital gains tax (CGT) treatment when a company is sold to an employee ownership trust (EOT).
Here is our short analysis of where this dialogue now takes us.
The Budget change, (more detail on those changes in our previous blog here) retaining CGT relief but now with an effective rate of 12%, raised a number of questions about how the new regime will work. We set out below the questions our clients are raising with us and our view of the answers which is at least partly informed by HMRC’s statement.
If I sell to an EOT, when will I have to pay CGT?
The starting point is that CGT will be payable on the 31 January following the end of the tax year in which the sale is completed.
However, if payment of the purchase price is to be in instalments, HMRC have confirmed there is a statutory facility to request payment if the tax in instalments if the purchase price payment period is more than 18 months. HMRC have provided guidance as to how to make this application, which (currently) involves writing a paper letter to HMRC’s Capital Gains Tax Queries postal address. We are aware that HMRC use AI to review incoming mail and allocate to the right team, so it will be important to very clearly state, both in the letter heading and the body of the letter, that it relates to Section 280 TCGA 1992 (the provision that allows for instalment payments of CGT), explaining the transaction and why an application for instalment payments of CGT is being made.
We understand that the eoa will make available a template letter for members on its eohub.
HMRC will then review the application and – assuming it is accepted - HMRC will confirm what tax payments are expected and when these are due. A seller will likely be expected to apply 50% of each instalment of purchase price received until all CGT has been paid. It is possible, with HMRC agreement, to revise any agreement on instalments of tax payments if changes are made to when purchase price instalments are paid.
As it’s now clearly on HMRC’s radar screen that many EOT sellers are likely to be using this facility, this will hopefully mean that there is now a clear pathway to instalment payments being allowed where appropriate in EOT sales.
Our understanding is that interest will not be due on the deferred payments of tax unless they are not paid when meant to be under the agreed instalment payment facility.
What happens if any part of the purchase price instalments can’t be paid?
HMRC have confirmed that if any part becomes irrecoverable, a seller can apply to HMRC to recalculate the total purchase price and so the capital gains tax liability. The legislative reference here is section 48 TCGA 1992.
It would be helpful to have confirmation of what irrecoverable means. At the very least it’s clear that insolvency will cover it, but can it also include, for example, where payment hasn’t been made in full by the end of a defined target period and is then written off by the seller?
Does a seller to an EOT forfeit their CGT relief if there is a subsequent disqualifying event?
If there is a “disqualifying event” before the end of the fourth tax year following the date of the sale, a seller will lose any CGT relief they have claimed, moving from a 12% rate to the full 24% rate.
Most of the disqualifying events should in our view be straightforward to avoid, but there is one - the company ceasing to trade - where a seller will need to be confident that their company will not become insolvent during the four tax year period.
Now that the CGT rate on an EOT sale has moved from 0% to 12%, the four year potential clawback period seems somewhat unnecessary, a point that has been made to HMRC. Any change, for example, to reduce the clawback period, would require a change to legislation which means this is an issue for HM Treasury RC. There is to be a meeting in January 2026 between the EOA and the Director for Personal Tax, Pensions, Tax Administration & HMRC Spending to consider this.
Is the government committed to extending employee ownership?
The eoa’s James de le Vingne reports that in a meeting with Blair McDougall, Minister for Small Business and Enterprise, the government has reiterated its commitment to double the co-operative and mutual economy (this includes employee ownership).
We should remember that employee ownership has proven benefits for business productivity (see report on the eoa's site with these findings), and with few other visible productivity levers available to government (perhaps apart from AI, if we’re confident we’re safely on the right side of the risk/reward ratio), we hope this commitment has real substance.
What happens next?
We think a clear picture is emerging of how an individual selling to an EOT can clearly and confidently manage their tax affairs. There are further clarifications to seek and practice to nail down, and we’ll keep you informed as these become clear.
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