Employee Ownership Trusts

Since 2014 it has been possible for an individual to sell a controlling shareholding in a trading company to an Employee Ownership Trust (EOT) on a “no gain, no loss” basis for Capital Gains Tax (CGT) purposes. This resulted in no CGT liability for the vendor shareholder, subject to certain conditions being met for a limited period of time.

The Government has announced that with immediate effect, for disposals on or after Budget Day, 50% of the gain arising will now be subject to CGT.  Current CGT rates are a maximum of 24% albeit that Business Asset Disposal Relief can afford a CGT rate of 14% on the first £1m of lifetime qualifying gains (rising to 18% from 6 April 2026).

It is feared that the Budget Announcement will render the exit option of selling a company to an EOT a much less attractive option for a controlling shareholder in a trading company.

Venture Capital Schemes

With a view to supporting companies seeking to access investment from individuals under the Enterprise Investment Scheme (EIS) and Venture Capital Trust scheme, the Government announced on Budget Day that it will double the investment thresholds and gross assets tests of the schemes.

From 6 April 2026, the annual company investment limit for both schemes increases to £10m from the current £5m. For knowledge intensive companies, the annual company investment limit rises to £20m from the current £10m.

From the same date, the lifetime company limit for both schemes increases to £24m from the current £12m.  For knowledge intensive companies, the lifetime limit rises to £40m from the current £20m.

The current legislation imposes a gross asset test of £15m before the share issue and £16m after the share issue. From 6 April 2026 these limits rise to £30m and £35m respectively.

Conversely, however, the income tax relief an individual can obtain by making a VCT investment will decrease from 30% to 20%, for investments made on or after 6 April 2026.

The above changes have been designed to ensure that so-called scaling companies, that have gone past the start-up company phase, can continue to grow and develop by accessing equity finance under the EIS and VCT schemes.

Enterprise Management Incentives (EMI)

EMI options are widely used by trading companies and groups to recruit, retain and motivate eligible employees.  They are a very flexible and tax-efficient form of share option affording exemption from income tax and NIC on the option gain, as well as access to CGT Business Asset Disposal Relief on the gain arising when the shares are sold, potentially enabling the option holders to access a (currently) 14% rate of CGT – where at least two years elapse between the date on which the option is granted and the date on which the shares acquired on exercise of the option are sold.

The Government announced on Budget Day that it wishes to encourage the use of EMI options further.  It will legislate to increase the size limits of companies which are eligible to grant EMI options.  From 6 April 2026 qualifying companies with gross assets of up to £120m (currently £30m) and up to 500 employees (currently 250 employees) will be eligible to grant EMI options to eligible employees.

This is a welcome development and it is hoped that it will make the use of EMI options available and accessible to a much greater number of companies.