Policy paper

Capital Gains Tax — Employee Ownership Trusts relief reduction

Published 26 November 2025

Who is likely to be affected

Individuals and trustees who dispose of shares to the trustees of an Employee Ownership Trust.

General description of the measure

This measure restricts the amount of relief from Capital Gains Tax (CGT) available on qualifying disposals of shares made to the trustees of an Employee Ownership Trust on or after 26 November 2025.

From 26 November 2025, 50% of the gain on disposal to the trustees of an Employee Ownership Trust will be treated as the disposer’s chargeable gain for CGT purposes. The remaining 50% of the gain will not be chargeable at the time of disposal but will continue to be held over to come into charge on any future disposal of the shares by the trustees of the Employee Ownership Trust.

Policy objective

The overall policy objective of the Employee Ownership Trust tax regime is to incentivise and support employee ownership as a viable and sustainable business model. Employee ownership gives employees a greater stake in the business in which they work, improving working conditions and driving productivity and growth in the economy.

This measure promotes fairness by ensuring that those who dispose of valuable shareholdings to the trustees of an Employee Ownership Trust pay some tax on their gains, whilst retaining a significant incentive to transition companies to employee ownership by charging a lower effective rate of tax on such disposals as compared to other disposal routes.

This measure supports the public finances by ensuring that the relief, which now costs significantly more than anticipated when introduced in 2014, continues to be effective whilst representing good value for money.

Background to the measure

This measure was announced at Budget 2025.

Detailed proposal

Operative date

This measure will have effect for disposals made to the trustees of an Employee Ownership Trust on or after 26 November 2025.

Current law

The main Employee Ownership Trust CGT provisions are set out at sections 236H to 236U of the Taxation of Chargeable Gains Act (TCGA) 1992.

Proposed revisions

Legislation will be introduced in Finance Bill 2025-26 to restrict the availability of relief on disposal of shareholdings to the trustees of an Employee Ownership Trust from 26 November 2025.

Section 236H of TGCA 1992 will be amended to provide that where the conditions for relief on disposal of shares to the trustees of an Employee Ownership Trust are met and claim is made under that section, 50% of the gain on disposal will be treated as the disposer’s chargeable gain for CGT purposes. Business Asset Disposal Relief and Investors’ Relief will not be available on disposals where relief under section 236H has been claimed.

The remaining 50% of the gain on disposal will not form part of the disposer’s chargeable gain. Instead, 50% of the gain will be held over and deducted from the trustees’ acquisition cost, so that it will come into charge on any subsequent disposal or deemed disposal of the shares by the trustees.

Summary of impacts

Exchequer impact (£ million)

2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031
0	+185	+775	+825	+905	+985

These figures are set out in table 4.1 of Budget 2025 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2025.

Macroeconomic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

This measure will impact individuals and trustees who dispose of shares to the trustees of an Employee Ownership Trust, as the amount of relief from CGT available on these disposals will be reduced.

The measure is not expected to impact on family formation, stability or breakdown.

Customer experience is expected to stay broadly the same because this measure does not bring new taxpayers into the tax system and does not significantly change processes for existing taxpayers.

Equalities impacts

This measure will impact individuals and trustees who dispose of shares to the trustees of an Employee Ownership Trust. An individual may be affected by this measure regardless of their protected characteristics. HMRC does not currently hold data on the protected characteristics of individuals impacted by this measure and so cannot make an assessment of the impacts on those with shared protected characteristics.

Administrative impact on business including civil society organisations

This measure is expected to have no impact on businesses as it only affects individuals and trustees who pay CGT in their personal capacity.

Customer experience is expected to remain broadly the same as it does not affect how businesses will interact with HMRC.

The measure is not expected to impact civil society organisations.

Operational impact (£ million) (HMRC or other)

Delivery costs to HMRC associated with this measure are expected to be £3.7 million for the necessary changes to Income Tax Self Assessment and associated systems. This figure is an upper bound high-level estimate and includes a significant contingency to reflect the level of uncertainty. Final costs are dependent on other changes being made as part of the government’s wider Budget package. Changes are also required for Making Tax Digital which may impact on delivery. The GOV.UK website and guidance for completing the return will be updated as a result of this measure. 

No additional HMRC staff resource will be required. 

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be monitored and assessed alongside other measures in the government’s package of CGT changes.

Further advice

If you have any questions about this change, contact the CGT policy team by email: cgtbudget@hmrc.gov.uk.