Is an Employee Ownership Trust the right choice for your law firm?

We know that the decision about the future of your law firm is rarely just financial and can often revolve around protecting what you have built.

Many traditional exit routes carry higher tax burdens and the risk of disruption from external buyers, but not Employee Ownership Trusts (EOTs).

Even with the recent reduced tax reliefs, EOTs offer a compelling route for succession and could be the right choice for your firm.

What is an Employee Ownership Trust?

An EOT is a trust that acquires a control interest (over 50 per cent) of a business on behalf of its employees.

It allows owners to gradually step back from their day-to-day management and ensure their employees collectively benefit from the company’s success.

If you want to qualify for an EOT, your firm must be a trading entity or a holding company of a trading group and the trust must treat all employees fairly.

EOTs can allow owners to retain minority shares or continue in a leadership role, as long as they do not control the trust.

How have EOTs changed?

EOTs have always stood out for their tax advantages and have previously offered 100 per cent Capital Gains Tax (CGT) exemption on qualifying disposals.

However, this changed in the Autumn Budget 2025 and the CGT relief was reduced to 50 per cent.

This may cause some firm owners to hesitate, but EOTs still remain extremely tax-efficient.

CGT rates for individuals continue to be 18 per cent for basic-rate taxpayers and 24 per cent for higher and additional taxpayers, with a £3,000 annual exemption.

Employees can also still receive up to £3,600 annually in tax-free bonuses and this incentive can help boost morale and the sense of shared ownership.

What are the other advantages of EOTs?

EOTs do not just provide fiscal efficiency and can also protect your firm’s culture and values.

Employees will become stakeholders in the business and this can result in higher productivity and greater staff retention.

An EOT also promotes business stability and allows your firm to grow without the uncertainty of new ownership.

How can we support your succession planning?

Any exit strategy can come with its challenges and we are here to help you manage the risks of an EOT.

We can help you assess the tax implications, carry out business valuations and model the financial impact of the succession.

We can also support you with forecasting and tax planning so your business can continue to stay efficient under your new ownership.

If you need support with your succession planning, get in touch.