Employee ownership trusts (EOTs) are a business model transforming thousands of enterprises across the UK. For law firms, a sector where succession anxiety is rising and the landscape is increasingly defined by consolidation, they offer a new way to think about exits.
Doyle Clayton was one of the first UK law firms to transition to employee ownership in 2019. It was a deliberate choice that factored in tax efficiency, but it was as much about what kind of firm we wanted to be and who we wanted to build it for. Six years on, my team is focused on advising other businesses making the same transition, and we are seeing more law firms looking to make the move than ever before. Here is what they should be weighing up.
Difficult market
Partnership succession has always been complicated, but in the current market, it is becoming painful. Internal buyouts are harder to fund. Loading debt on to the next generation of partners is a serious ask and, in many cases, a deal-breaker. Lateral recruitment is not a succession strategy. The assumption that someone will always want to buy you out at the right price at the right time is increasingly difficult to justify.
An EOT creates your own buyer. Not a conditional one, but rather a solid option independent of market timing, third-party appetite, or a competitive and public auction process. EOT transactions eliminate the need to share confidential information with third-party buyers during a distracting, adversarial sale process that potentially exposes your business to direct competitors. For equity partners thinking about the next decade for themselves and their firm, the route offers real value.
Protecting independence
Private equity has moved into the legal sector. For some firms, that is the right answer. But for many, it is not – there are other options.
An EOT safeguards independence. It protects the culture that partners have spent years building. It keeps jobs in place and decision-making internal. These are not the soft considerations they are often billed as – they are the elements that give your firm its identity and value in the first place. Once they are gone, they are hard to recreate, despite glossy slogans on boardroom walls.
If you have spent 20 years building something to be proud of, an EOT is a way of exiting on your own terms.
Tax-efficient
There is a misconception that EOTs are the consolation prize; the route you take when you cannot get a good price elsewhere.
In November 2025, the government reduced the capital gains tax (CGT) relief available on EOT disposals from 100% to 50%, meaning sellers now face an effective CGT rate of about 12% on a qualifying sale. That is a material change and it is right that advisers are carefully modelling its impact. But the picture needs context.
Business asset disposal relief now carries an 18% CGT rate that is limited to a lifetime allowance of just £1m. Gains above that are taxed at 24%. For partners with significant equity value, the headline CGT numbers on a conventional exit are considerably higher than they were. That is before you factor in the costs, complexity and execution risk of a competitive sale process.
A well-structured EOT transaction, with vendor financing on commercial terms, can deliver an all-in return that competes seriously with a third-party sale, even at a lower headline multiple. Excess cash can be extracted tax-efficiently as part of equity value, rather than extracted pre-transaction at dividend tax rates. Commercial structuring enables vendors to accrue interest at commercial rates on deferred consideration, generating significant returns in addition to the purchase price. Transaction costs are typically much lower. Completion timelines are faster and, critically, the variables are within the seller’s control.
The instalment provisions under section 280 of the Taxation of Chargeable Gains Act 1992 can, in certain circumstances, give vendors flexibility on CGT payment, spreading the liability over time where proceeds are deferred. This is key to cashflow planning and should be determined as part of any pre-transaction modelling.
Employee engagement
There is a reason the evidence on employee ownership keeps pointing in the same direction. Staff in EOT-owned businesses are eligible for income-tax-free bonuses of up to £3,600 annually. They have a direct stake in the firm’s performance and they share in future sale proceeds.
The results speak for themselves: EOTs translate into lower staff turnover, stronger client relationships and teams that are genuinely invested in outcomes. For a professional services firm, where talent is the product, it is difficult to put a price on this.
Getting the transaction right
An EOT is not a transaction you should approach without proper expert advice. The legal and tax structuring must be done correctly. Cashflow modelling must be thorough. Sellers need to know they can meet any CGT liability and that the trust can fund the acquisition sustainably. The governance arrangements, which control how the EOT operates and interacts with company management, need to be fit for purpose from day one. Timing is also a consideration but, in my experience, EOTs tend to act as a catalyst to drive positive organisational change post-sale, improving longer-term performance of the company and staff engagement.
Done well, this is a route that allows you to realise the value you have built, protect what matters and leave a firm you know is in safe hands: the hands of your own people.
Akshay Vaghela is EOT services director at Doyle Clayton, London
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