Recent reports (behind paywall) indicate that EOT transactions have declined from approximately 550 in 2024 to an estimated 350 this year. However, industry experts agree this slowdown tells a more nuanced and ultimately positive story.
Why the Numbers Dropped
The October 2024 budget introduced crucial legislative changes that eliminated transactions that weren't aligned with the genuine spirit of employee ownership:
Tax-avoidance schemes where EOTs were used as temporary vehicles to avoid CGT before ultimate sale to third parties
Cash extraction models involving zombie companies with no real future, designed solely to extract assets tax-free
Founder-controlled structures where trustees were exclusively family members with no genuine employee governance
The new rules now require UK-based trustees, trustee boards not controlled by exiting shareholders or their families, and maintenance of these conditions for over four years (up from one year). As one advisor noted, these changes have "reduced the number of EOT sales. But only by eliminating those that weren't in the spirit of the law, and realistically were never going to benefit employees/their local communities."
These changes have effectively filtered out transactions driven purely by tax benefits.
Robert Postlethwaite, Founder and Managing Director, Postlethwaite Solicitors observed:
"The companies that are doing it are the ones that are actually interested in employee ownership as part of the future of their companies."
Industry practitioners have welcomed these reforms. As RM2 commented, the changes "are unlikely to diminish interest from business owners with a genuine commitment to transferring ownership to employees."
Why EOTs Remain Attractive
For founders with profitable businesses seeking alternatives to traditional exits, EOTs continue to offer compelling benefits:
Culture preservation - maintaining company values and identity
Employee reward and protection - ensuring teams share in long-term success
Legacy building - particularly valuable for long-standing family businesses
Sustainable succession - with research showing that over two-thirds of older SME owners plan to sell within ten years
RM2 continues to see "significant interest from owners seeking an alternative to traditional exit routes on retirement that maintain company culture, protect and reward their employees, and create long term sustainability for long-standing family-owned businesses."
The slowdown represents a maturing market where quality trumps quantity, ensuring EOTs fulfil their intended purpose of creating genuine, sustainable employee ownership.