EOT Meaning: What Is an Employee Ownership Trust?

What is an EOT? Learn how employee ownership trusts work, who manages them, how they’re funded, and the benefits and drawbacks for businesses and staff.

EOT stands for Employee Ownership Trust — a structure that allows a business to become employee-owned by transferring a controlling stake (usually over 50%) to a trust that holds shares on behalf of all employees.

Introduced in the UK in 2014, EOTs offer a tax-efficient succession route for business owners and promote inclusive, long-term ownership for staff. They’ve become especially popular with founder-led businesses looking for a values-driven exit without handing control to outside investors.

How Is an Employee Ownership Trust Funded?

An EOT is usually funded through:

  • Deferred consideration – the company pays the selling shareholders over time using future profits

  • Third-party lending – banks or other lenders provide financing, repaid from company profits

  • Company contributions – the business makes payments into the trust

The trust buys shares from the owners, but employees don’t contribute personally. The EOT uses the business’s cash flow to fund the purchase, often over several years.

Who Manages the EOT?

The EOT is governed by a board of trustees, who are legally responsible for acting in the best interests of all employees. The board typically includes:

  • One or more independent trustees

  • Possibly one or more employee representatives

  • Sometimes a director or founder (as long as a conflict of interest is managed)

This board ensures that the business continues to operate fairly and that employee ownership principles are upheld.

Employee Ownership Trust Tax Reliefs

EOTs benefit from two major tax reliefs:

  1. Capital Gains Tax (CGT) relief

    • When a qualifying business sells a controlling interest (over 50%) to an EOT, the sellers pay 0% CGT on the sale proceeds — if all HMRC rules are met.

  2. Income Tax-free bonuses

    • Employees of EOT-owned businesses can receive tax-free annual bonuses of up to £3,600 per person. These are still subject to National Insurance.

These reliefs make EOTs highly attractive from both a business sale and employee rewards perspective.

How Do EOTs Benefit the Business Owner?

  • Tax-free exit: The biggest financial draw is the 0% CGT on the sale.

  • Flexible deal structure: Payment can be staged over time.

  • No third-party buyer needed: Avoids selling to private equity or competitors.

  • Legacy preservation: Keeps the business independent and its culture intact.

  • Smoother succession: Allows gradual exit while still guiding the business.

It’s a route that suits owners looking for continuity as much as cash.

How Do EOTs Benefit the Business?

  • Greater staff engagement and retention: Employees are more invested in outcomes.

  • Improved performance: Studies show employee-owned firms are often more productive and resilient.

  • Long-term thinking: Focus shifts from short-term profit to sustainable growth.

  • Stable leadership transition: Removes the pressure of external buyer demands.

  • Positive reputation: EOTs enhance employer brand and customer trust.

The business becomes more employee-focused without compromising profitability.

How Do EOTs Benefit the Employees?

  • Ownership without investment: Employees get an indirect stake without buying shares.

  • Tax-free bonuses: Up to £3,600 per year in income tax-free rewards.

  • Job security: Less risk of layoffs or cultural shift compared to a trade sale.

  • Voice and influence: Greater say in how the business is run, often via board representation.

  • Shared success: As the company grows, staff benefit collectively.

For employees, EOTs promote fairness and alignment — especially in owner-managed businesses.

What Are the Disadvantages of EOTs?

For Business Owners:          

  • No premium sale price: You’re unlikely to get a valuation uplift like with private equity.

  • Slower payment: If financed from profits, you may wait years for the full amount.

  • Loss of control: You’ll eventually hand over governance to trustees.

  • Ongoing involvement: Many founders stay on as CEO or advisor post-sale.

For Employees:

  • No personal shareholding: There’s no capital gain unless a second scheme (like EMI) is introduced.

  • No guaranteed bonuses: Profit-based bonuses are discretionary.

  • Limited direct influence: Their stake is collective, not individual.

EOTs work best where trust, communication and good governance are already embedded in the culture.

Final Thoughts

EOTs are one of the most powerful ownership models available to UK businesses. They offer tax-free exit for owners, shared rewards for staff, and a framework that encourages long-term business success.

But they also come with responsibilities — especially around governance, funding and cultural fit. If you're considering an EOT, take proper legal and tax advice early to ensure the model works for your goals.