Around 2 years ago, employee ownership trusts were the exit everyone was talking about. Sell to your staff, pay no capital gains tax, keep the culture intact and walk away looking like a hero.
Corporate advisers and accountants were running seminars on them. Business owners who'd never heard the term in 2022 were soon queuing up for one by 2024.
A Freedom of Information request has shown how much that's changed. In the first 3 months of this year, just 90 of them got tax clearance. The lowest number in 4 years.
But nothing changed with those businesses. What changed was the tax relief - cut from 100% to 50%, with a 4-year clawback attached. And unsurprisingly, the queue of owners wanting to do an EOT got smaller.
Which kind of tells you what most of those owners were really buying into with EOTs - not a succession plan, but a tax rate.
I've seen this happen a lot and it isn't just an EOT problem. Business owners can spend months crafting an optimal tax structure for their exit - and comparatively little time on the only number that really matters: what they actually walk away with.
It seems like a sensible decision at the time
Nobody wakes up and decides to build their exit entirely around tax. But sometimes it just seems to happen gradually. Your accountant mentions different options, or maybe a business contact you know sold their company a particular way and did alright out of it. And before long you're asking Chat GPT to compare offshore trusts or quizzing friends who’ve relocated to Dubai.
But there's a couple of problems with focusing too much on the tax side of things, if it's to the detriment of the actual number you walk away with.
First, the government can change the rules faster than you can change your business. As we’ve seen before, a tax rate can move in an afternoon and government policy can change just as quickly. Having previously lived in the Middle East for nearly a decade - I can say it’s not just the UK where tax and government policy can change overnight.
Second, it shifts your focus away from creating more value in your business over the next 24-36 months, which could more than offset any potential tax efficiencies.
The number nobody writes down
Ask most owners what their business is worth - or their target exit number - and they'll give you a figure. Ask them what they'd actually “bank” if they sold it - and the room tends to go quiet.
Yet that second figure is the one I'd have you build your thinking around. Call it your “net number”. It's what you’re left with when the deal is done, the earn-out has played out, the deferred payments have arrived (or not arrived) and any tax that’s due has been paid. It's the return on every year you put in to your business.
And let's remind ourselves of the main things that decide that figure:
The profit the buyer believes in. Not the profit in your accounts, but the actual profit a buyer can see, once they've stripped out what they don’t need or anything that depends on you.
The valuation multiple they'll pay. Driven by how transferable, resilient and predictable the business looks without you in it, plus the value they believe they’ll add, as the new owners. But size matters - and a group of several synergistic businesses will get priced on a different multiple to any one of them standing alone. Which is why building a group can increase the multiple faster than anything you do inside any one of the companies.
The structure of the deal. How much is cash on completion and how much is earn-out or deferred consideration (that you may or may not ever see). It's worth saying that more deals in 2026 are being done with a larger slice held back, simply because buyers are pricing risk into the terms rather than the headline number.
The tax on the transaction. How you choose to structure the business and your personal affairs from a tax perspective.
You probably noticed something about the list above. The first 3 are decided by the business you continue building over the next few years. Only number 4 is decided by someone else. Of course - it's your choice how you want to structure the business and your personal affairs - but the tax implications related to your choices are still decided by someone else.
And yet the tax you pay can be much less significant when compared to the extra money you make, by simply focusing on valuation multiples.
But isn’t tax the bit I can actually control?
I’m currently working with a handful of business owners who are all about 18-36 months away from their target exit date - and all of them are building a high-value group of companies in the meantime. Each are different sizes and different sectors
All of them have been exploring the most effective arrangements for a tax-efficient exit - and this is something we actively encourage. When we partner with business owners, we’ll often bring in our own specialist tax advisors to help them make the most informed decisions for their own circumstances.
As I’ve said, some owners will naturally invest more of their time building value into their business to maximise what the company is worth, while others concentrate more on the tax efficiency part.
But what's most important is your overall financial outcome. Ultimately you have no control over what happens in the Budget or what becomes government policy. What you do have is the opportunity to move your “net number” by more than the tax rate ever will.
Work out your net number
Take what you honestly think your business would sell for today, knock off what a buyer would discount for anything that depends on you, assume a minimum one-third of the price is deferred, then apply the tax you think you’ll pay. Write the figure down.
Then ask yourself which of the 4 things from the list above would move your net number the most. I can tell you now it won't be the tax.
The owners who end up with the highest return for their years of work aren't the ones who timed the Budget the best or found a hidden loophole. They're the ones who spent enough time before their exit, making the business itself worth more in the first place.
All the best,
Gavin
P.S. If your net number came out lower than the figure you had in your head, you're in good company - it nearly always does. The useful question is which of the 4 things is likely to have the biggest impact, because that's where the next 24-36 months should go. Reply with "net" and I'll tell you where I'd look first.
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