Family business succession when the next generation has other plans
You built it expecting to hand it on. Then the conversation happened: the next generation has different plans, or the one who might take it over is not the one who could run it. That leaves a business with no successor, a name worth keeping, and an owner who does not want to sell it to just anyone.
The short version
Without a willing and capable family successor, most owners have three real options: pass it to family anyway, sell to an outside buyer, or sell it to the people who already work in it through an Employee Ownership Trust. The EOT is the only one that keeps the business independent, under its own name, without needing anyone in the family to run it — and family members who work in the business benefit from the trust like every other employee.
Your options, honestly compared
| Compared on | Pass to family | Sell to a trade buyer | Employee Ownership Trust |
|---|---|---|---|
| Needs | A relative who is willing and able to run it. | A buyer, a sale process, and rivals inside your numbers. | A profitable business and a team that can carry on. |
| The name and the culture | Survive, if the successor keeps them. | At the buyer's discretion. | Survive by design: same name, same leadership. |
| Your money | A gift gives you nothing; a sale to family needs the family to fund it. | Cash on completion. | Paid from company profits over time, at market value. |
| Tax on the way out | Gifts of business assets can usually be held over for CGT; the shares may also qualify for inheritance tax relief. | CGT at 18% (BADR, first £1m) and 24% above. | CGT on only half the gain: effective 12%. |
| Family members who work there | Own it. | Depends on the buyer. | Benefit from the trust and its tax-free bonuses like everyone else. |
| Your role | Whatever the family agrees. | A handover, then out. | Stay on, step back gradually. |
The inheritance tax question
Family owners ask this before anything else, and it deserves a straight answer.
Trading-company shares can qualify for Business Property Relief from inheritance tax. From 6 April 2026, 100% relief applies to the first £1m of qualifying business and agricultural property combined, with 50% relief above that. Holding the shares until death and passing them on is therefore often the most inheritance-tax-efficient route — if someone in the family can run the business.
Sell to an EOT and you swap relieved shares for cash and a loan note in your estate, which do not get that relief. That is a real trade-off, and it is why an EOT is a decision about succession first and tax second. We look at CGT, inheritance tax and your own income needs together before recommending a route.
Does your business qualify for an EOT?
The conditions are not unreasonable. You need:
- A UK-resident trading company — not an investment vehicle.
- To sell a controlling stake (more than 50%) to the trust.
- A trust that benefits all employees on broadly equal terms.
- UK-resident trustees, and you cannot control the trust after the sale (rules since 30 October 2024).
- Not too many shareholder-employees: those holding 5% or more must be no more than two-fifths of the workforce.
- A business that can fund its own purchase from profits over a sensible period.
If any of those is a problem, we say so at feasibility and you stop there — no fee for the rest.
What it looks like in practice
Most family exits to an EOT follow the same shape. The founder sells 51% or more to the trust at an independent valuation. Family members who work in the business stay in their roles and become beneficiaries. The founder often stays on the board through the transition and comes off the trustee board as the rules require, while an independent trustee and an employee representative come on. The company pays the founder from profits over several years, and the name above the door does not change.
Our five-step process sets out the timeline; our case studies show owners who chose this over a sale.
Questions family owners ask us
Can my children still be involved if we sell to an EOT?
Yes. Anyone employed by the business is a beneficiary of the trust and can receive the tax-free bonuses. A family member can also sit on the board, and one can serve as a trustee — as long as the trust as a whole is not controlled by the former owners and their connected persons.
Can the family keep a minority stake?
Yes. The trust must hold more than 50%, but the remainder can stay with the family. Many founders sell a majority to the trust and retain a minority, which also keeps them within the limited-participation rules.
Is it better to gift the business to family for tax?
Often, on inheritance tax alone — see above. But a gift gives you no money, and it only works if the recipient can and will run the business. We compare the routes on your numbers, including your own retirement income, rather than on one tax in isolation.
What if there is no obvious leader in the team either?
Then we look at that first. An EOT needs people who can run the business; if the second tier is not ready, a phased exit with you staying on, or an MBO with backing, may be a better fit. See EOT vs management buyout.
Want to explore an EOT?
We’ll walk you through the basics. No pressure. No commitments.
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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