Employee Ownership Trusts and HMRC: clearance, the trustee rules and claiming the relief
An EOT is a creature of tax law, so HMRC's requirements shape the whole deal. This page sets out what changed on 30 October 2024, what the trustees must be and do, and how the Capital Gains Tax relief is actually claimed — in plain English, with the sources.
What changed on 30 October 2024
The Autumn Budget 2024 tightened the regime for disposals on or after 30 October 2024. Four changes matter most:
- Trustees must be UK resident. The trustees, as a single body, must be resident in the UK. Offshore trustee arrangements no longer qualify.
- The former owners cannot control the trust. Sellers and people connected with them must not make up a majority of the trustees or otherwise control the trust — the trustee independence requirement.
- The trustees must not overpay. They must take reasonable steps to ensure the price paid for the shares does not exceed market value, which in practice means an independent valuation.
- The clawback period is longer. A disqualifying event in any of the four tax years after the year of disposal withdraws the relief from the seller, not just events in the following tax year.
Sellers must also report the sale proceeds and the number of employees when claiming the relief, and HMRC stopped giving advance clearance on whether a disposal to a trust falls within the "transactions in securities" rules for EOT setups from the same date.
Then on 26 November 2025 the relief itself was halved: 50% of the gain is now relieved rather than 100%, an effective 12% rate for a higher-rate seller. See Employee Ownership Trust Capital Gains Tax.
What HMRC requires of the trust
The relief has eight requirements. The ones that decide most deals:
- Trading requirement. The company (or the group it heads) must be trading, not an investment vehicle.
- All-employee benefit requirement. The trust must benefit all eligible employees on the same terms. Benefits may be weighted by pay, hours or length of service, but no one can be excluded by name.
- Controlling interest requirement. The trust must hold more than 50% of the ordinary share capital, voting rights and rights to profits and assets.
- Limited participation requirement. People who hold (or have held) 5% or more of the shares must not exceed two-fifths of the workforce.
- Trustee residence and independence (above), and the consideration requirement on market value.
HMRC's own guidance is in the Capital Gains Manual from CG67800.
Clearance: what you can and cannot get
You cannot get HMRC to pre-approve an EOT as such, and since 30 October 2024 you cannot get a clearance on the transactions-in-securities point for an EOT setup. What you can still do is apply for clearance on specific points of law under the statutory clearance procedures where they apply, and — more usefully — get the structure right so that no clearance is needed.
In practice the protection comes from three things: a defensible independent valuation, a trust deed that meets every requirement to the letter, and a paper trail showing the trustees took reasonable steps on price. We prepare all three.
How the relief is claimed
The seller claims the relief on their Self Assessment tax return for the year of the disposal. The claim must state the consideration received and the number of employees at the time of the disposal, and it is made jointly with the trustees. The trustees, in turn, must keep the trust within the requirements for the four following tax years, because a disqualifying event in that window — losing the controlling interest, breaching the participation limit, trustees moving offshore — reverses the seller's relief.
If the trustees later sell the company, the half of the gain that was held over at the original sale comes into charge on them at that point.
Questions owners ask about HMRC
How to prepare an EOT claim?
The main steps to prepare an Extension of Time (EOT) claim are understanding the contract, identifying delays, analysing impacts, gathering evidence, and submitting a clear report.
- Understand the contract: Clarify contractual terms to recognise grounds for an EOT.
- Identify delays: Categorise the causes and periods of delay accurately.
- Analyse impact: Assess how delays affect project timelines and costs.
- Gather evidence: Collect detailed documentation to support the claim.
- Prepare and submit: Compile a formal, professional EOT report and submit per contract requirements. Tip: Ensure all evidence is well-organised and directly linked to delays to strengthen the EOT claim.
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Written by Parag Patel | Strategy and Tax Planning Consultant
Parag leads the Exit Better team at JLA Accountants, advising owners on employee ownership, succession and the tax that comes with both.
About the team