Whilst the recent Autumn Budget focused largely on personal taxation, it is still set to affect many business transactions and succession plans.
One of the biggest announcements for businesses was the decision to reduce Capital Gains Tax (CGT) relief on disposals to Employee Ownership Trusts (EOTs) from 100 per cent to 50 per cent.
With the rising dividend taxes and changes to capital allowances, the Autumn Budget will affect how business owners benefit from future profits.
How have EOTs been affected by the Autumn Budget?
The EOT reform comes after HM Revenue and Customs (HMRC) reported that the cost of EOT relief has increased significantly over the years, with it reaching £600 million in 2021-22.
It was originally on course to cost £2 billion, 20 times beyond the original costings when the scheme was announced in 2013.
EOTs have been used by business owners as a tax-efficient strategy to hand over ownership and benefit from full CGT relief.
Despite the changes, EOTs still offer substantial benefits, including:
- A more tax efficient sales structure vs exits to other parties
- Tax-free bonuses of up to £3,600 per employee each year
- Succession planning without the uncertainty of third-party buyers
- Protection of the business’s identity and company culture
Business owners considering an EOT must reassess the financial advantages of the strategy, along with the impact on the business operations and determine if it is still the right choice for them and the company.
We advise owners that the decision to progress with a sale to an EOT should not be driven by tax strategy, but rather the long-term impact on the company.
How does the dividend tax increase affect businesses?
The Autumn Budget announced that the rates of Corporation Tax remain unchanged but there will be an increase to dividend income tax rates from April 2026.
These increases included:
- Ordinary rate from 8.75 per cent to 10.75 per cent
- Upper rate from 33.75 per cent to 35.75 per cent
- Additional rate remains the same at 39.35 per cent
Given the changes, business owners may benefit from re-visiting their particular strategy of profit extraction via the blend of salary and dividends.
The changing rates and thresholds may mean that previous planning is no longer optimised and it is important to ensure you stay informed.
How are investment and capital allowances affected?
The Budget introduced reforms to strengthen business investment and improve the UK’s investing and scaling environment.
The new 40 per cent First Year Allowance (FYA) increases access to upfront tax relief by extending first-year allowances to certain lease assets and unincorporated businesses that previously couldn’t benefit.
This allows smaller and growing businesses more immediate support when investing in essential equipment.
The Chancellor also announced investment reforms to Enterprise Management Incentives (EMIs) and Venture Capital Trusts (VCTs).
From April 2026, EMI options can be granted by companies with up to 500 employees (currently 250 employees) and the company share option cap will increase from £3 million to £6 million.
Alongside a rise in the gross asset threshold to £120 million from £30 million currently, these changes aim to help fast-growing companies attract investment and avoid outgrowing tax-advantage schemes.
How can businesses prepare for these reforms?
For many business owners preparing to buy, sell or exit a company, the Autumn Budget will have implications.
When planning an EOT, it is important to review whether the exit strategy is still your preferred choice or if any other exit strategies are now better suited.
With our expert financial advice, you can ensure you are making the right decision for both you and your business.
If you are unsure of how the Autumn Budget will affect your finances and business, contact our team for support.
