Budget 2025: EMI boost and EOT tax cut – what it means for your business

If you are weighing up an employee ownership trust, refreshing your EMI scheme or planning an early-stage funding round, the November 2025 Budget made some important calls.

For sellers, the EOT route still carries bespoke capital gains relief and is significantly more tax-efficient than a trade sale, but the relief has been reduced. For growth-focused SMEs, Enterprise Management Incentives become bigger and more flexible from April 2026. For very early-stage funding, the Seed Enterprise Investment Scheme is unchanged.

This guide is for founders, CFOs and in-house teams who want the commercial impact, not the jargon. It covers what's, changed, when it applies and how it affects exits and incentives.

If you need help mapping the best route for your company, our employee share schemes solicitors advises on EOT sales and EMI schemes.

Employee ownership trusts

What are the headlines from Budget 2025 for EOTs?

From 26 November 2025, the special capital gains tax relief on qualifying sales to an EOT is cut back. Instead of full relief, 50% of the seller’s gain is relieved at the point of sale giving an effective 12% tax rate on the full gain.

The remaining 50% is deferred and can come into charge if and when the EOT trustees dispose of the shares in future.

Previously 100% was relieved at the point of the EOT sale and came into charge if and when the EOT trustees disposed of the shares on an onward sale.

This means EOTs remain tax-efficient for sellers, but the rules are less generous than previously.

Does BADR stack with EOT relief?

The EOT and Business Asset Disposal Relief (BADR) regimes are separate and operate independently.

For owners, this means you are choosing between different routes to relief rather than stacking them on top of the same gain. If you are heading towards an EOT sale, the focus for sellers is on how much can be relieved under the EOT rules. If you are considering a trade or private equity sale, the question is whether the gain can qualify for BADR, and at what rate.

You can read more about the differences between an EOT and a trade sale in our article.

What about the tighter qualifying rules for EOTs?

The stricter conditions introduced from late 2024 still apply. They cover points such as where the trustees must be resident, how independent they need to be from the sellers, how the consideration is funded and other structural safeguards.

Even though the relief has been cut, these conditions still matter when you design the transaction. HMRC guidance sets out the detailed qualifying conditions and the disqualifying event rules. You need to keep the trust compliant over time, not just on day one, if you want to preserve the tax advantages.

What is the commercial impact for EOT sales?

The tax gap between an EOT sale and a straightforward trade sale has narrowed, but an EOT is still highly attractive particularly where owners care most about employee engagement, employee productivity, preserving jobs, independence and legacy.

With main capital gains tax rates now up to 24%, a conventional trade sale will produce a higher effective tax rate than a well-structured EOT at a 12% tax rate. However, outcomes are always specific to the deal. They depend on valuation, how much of the price is left as vendor loans, if and when the trustees sell in future, and the governance framework around the trust and the business.

How do the new CGT and BADR rates affect trade sales versus EOTs?

From 30 October 2024, the main capital gains tax rate is 24% for higher rate and additional rate taxpayers.

Business Asset Disposal Relief still has a £1M lifetime limit. Qualifying disposals are taxed at 14% from 6 April 2025 and 18% from 6 April 2026.

In broad terms this means:

• A trade or private equity sale is taxed at up to 24%, 14% or 18% to the extent BADR applies within the lifetime cap.

• An EOT sale taxes 50% of the gain up front at your personal rates, with the other 50% deferred if and when the trustees dispose of the shares.

• The mathematics can still favour an EOT for many sellers and this principally turns on valuation, but the margin is thinner and the cultural and commercial rationale for employee ownership should be central to the decision.

What this means in practice

If you sell your business for £5m:

Before 26 November 2025:

• EOT sale: 0% CGT
• Trade sale with BADR: 14% CGT on first £1m, then 24% on remainder = £1.1m CGT

On/after 26 November 2025 until 5 April 2026:

• EOT sale: 50% deferred, 50% taxed at up to 24% (effective ~12%) = £0.6m CGT
• Trade sale with BADR: 14% till April 2026, 24% on remainder=£1.1m CGT

On/after 6 April 2026:

• EOT sale → 50% exempt, 50% taxed at up to 24% (effective 12%) = £0.6m CGT
• Trade sale with BADR → 18% on first £1m, 24% on remainder = £1.14m CGT

Overall CGT whether 24% or 12% (EOTs) is a lot more attractive than income tax rates on profit extraction as a dividend at 39.35%.

I am partway through planning an EOT, what should I do now?

If you are already working on an EOT:

• Re-model net proceeds on the new 50% relief and test different vendor loan or earn-out structures.

• Consider timing of sale and cash flow considerations given that CGT needs to be paid by 31 January following the end of the tax year of sale. So, CGT on a sale on 5 April 2026 will need to be paid by 31 January 2027 and CGT on a sale on 6 April 2026 will need to be paid by 31 January 2028.

• Check that trustee residence, independence, participation limits and funding arrangements meet the updated conditions, and that your governance reduce the risk of disqualifying events.

• Refresh HMRC clearances and timetables to reflect the Budget effective dates and any changes to financing or valuation.

Enterprise Management Incentives

What gets better from 6 April 2026 and who benefits?

From 6 April 2026, EMI becomes larger and lasts longer.

• The employee limit increases from 250 to 500.

• The gross assets limit rises from £30M to £120M.

• The company-wide EMI option cap increases from £3M to £6M.

• The maximum period in which options can be held and exercised while keeping EMI tax treatment extends from 10 years to 15 years. This longer period will also apply to existing EMI options that are still in place on that date.

The Budget documents also flag that the EMI notification requirement is expected to be removed from April 2027 and confirm the previous announcement that a PISCES event can be specified as an exercise point with effect from 15 May 2025.

In practice, this is good news for larger, later-stage scale-ups and businesses with longer exit plans. They gain more headroom to grant options, can keep them within EMI for longer, and have more flexibility if listings or strategic exits are delayed. For CFOs and HR teams it simplifies retention planning and reduces the need to move people into less efficient arrangements once earlier option windows would have expired.

What should companies do now on EMI?

You do not need to wait until April 2026 to prepare. Useful steps include:

Refresh your cap table and EMI headroom

• Recalculate how much EMI capacity you will have under the new £6M company cap and 500 employee limit.
• Use this to plan grants for hard-to-recruit or business-critical roles.
• Defer non-tax advantaged grants till April 2026 when the new limits are operational.

Review scheme rules and grant documents

• Review exercise periods for existing grants to determine which grants should be extended when the 15-year rule comes into effect.
• Add PISCES as a possible exercise trigger where it makes sense.
• Prepare for the removal of the EMI notification requirement from April 2027 so you can simplify processes in due course.

Update valuations and employee communications

• Agree a valuation ahead of April 2026 with HMRC so you are ready to grant as soon as the new limits are effective.
• Explain to employees how the longer period works and what it means for tax and potential returns.

Sense check alternatives for people who do not qualify for EMI

• Consider growth shares or other arrangements where EMI is not available.
• Pay particular attention to senior hires, contractors and overseas staff so your overall equity approach remains clear and consistent.

You can read more about the importance of reviewing your employee share scheme in our guide.

I am running an EMI scheme review. What should I do now?

If you’re already reviewing your EMI scheme:

• Plan for April 2026 by increasing EMI headroom where you can and updating rules to recognise PISCES events.

• Map non-EMI populations, such as contractors and overseas hires, to CSOP or growth share alternatives so you have a joined-up structure across the business.

SEIS and early-stage funding

What is happening with SEIS?

There are no new SEIS changes in Budget 2025. The April 2023 rules still apply. In summary:

• Companies can raise up to £250,000 under SEIS.

• Gross assets must not exceed £350,000 at the time of the share issue.

• The company must be no more than three years old.

• Individual investors can invest up to £200,000 per tax year.

Knock-on from EIS/VCT updates

From 6 April 2026, EIS and VCT company limits increase (investment and gross asset tests), and VCT upfront Income Tax relief reduces to 20%, which may reshape investor preferences between VCTs and direct EIS/SEIS in the short term. Founders should time rounds and investor conversations with these dates in mind.

I am preparing a SEIS or EIS round, what should I do now?

If you are planning an early-stage round:

• Use SEIS as early as possible where you qualify, then follow with EIS.

• Plan the sequence of funding rounds and investor communications around the April 2026 changes to EIS and VCT so that investors understand the tax position at each stage.

Register now to access our free webinar on investment readiness, and discover practical tips to help you prepare for raising investment and approach your funding round with confidence.

How we can help

If you’re planning an EOT, EMI option scheme or SEIS/EIS raise (or all three), our expert employee share schemes solicitors can manage the process, aligning the structure, shareholder documents, tax reliefs and investor requirements so nothing falls between the cracks. Contact us to explore what that could look like for you.