Employee Ownership Trusts
How do they work in Hospitality, Tourism and Leisure?
In an industry built on people where service, experience and culture are everything, the question of who owns the business has never been more important As hospitality, tourism and leisure operators navigate a post-pandemic landscape marked by labour shortages, rising costs and shifting consumer expectations, a quiet but significant shift is underway: the rise of the Employee Ownership Trust (EOT).
Introduced in the UK in 2014, EOTs allow founders to sell a controlling stake in their company to a trust that holds it on behalf of employees, entirely free of capital gains tax. In contrast, open market sales are generally subject to capital gains tax at 24%, although a 14% or 18% tax rate may apply to the first £1 million of lifetime gains. But beyond tax advantages, EOTs represent a cultural shift: one that places long-term stewardship, employee engagement and shared success at the heart of business strategy.
As of mid-2025, there are approximately 2,470 employee-owned businesses in the UK employing over 358,000 people. Since the legislation was introduced, the number of EOT transactions has grown by 1,640%, with 65% of these occurring in small businesses, many of which operate in hospitality, tourism, and leisure.
This model is not just about tax efficiency or succession planning. It’s about embedding long-term thinking, improving employee engagement, and creating more resilient businesses. For sectors where people are both the product and the differentiator, EOTs offer a compelling proposition.
What is an Employee Ownership Trust and why should you care?
An EOT is a business structure that enables a company to be owned collectively by its employees through a trust. Introduced in the UK in 2014, EOTs allow business owners to sell a controlling interest (51% or more) to the trust, free from Capital Gains Tax (CGT). Employees, in turn, benefit from income tax-free bonuses of up to £3,600 per year.
But the appeal of EOTs goes beyond tax efficiency. For many owners, especially in sectors like hospitality and tourism where businesses may have limited tangible assets or barriers to entry, finding a third-party buyer willing to pay perceived fair value can be difficult. In such cases, an EOT can offer a more viable and value-aligned exit route than a traditional sale.
Compared to a Management Buyout (MBO), EOTs also offer greater flexibility.
- Ongoing involvement: Founders can often remain involved at board level post-sale, whereas MBOs may require a cleaner break or more prescriptive governance changes.
- Lower risk for managers: MBOs typically require senior staff to invest their own capital, something not all managers are willing or able to do. EOTs avoid this hurdle by funding the purchase through company profits or external finance.
- Simplified succession: EOTs can be easier to structure and gain clearance for than MBOs, especially under recent HMRC guidance.
Crucially, many business owners have spent years building high-performing, loyal teams and cultivating a culture that reflects their values. Selling to opportunistic capital, where synergies often mean job losses or cultural erosion, can feel like a betrayal of that legacy. EOTs offer a way to protect jobs, preserve culture, and maintain continuity for long-standing clients, guests, and real estate partners.
In essence, EOTs provide a route to transition ownership without selling out, while fostering a more engaged and motivated workforce.
The hospitality advantage: How EOTs align with sector needs
Hospitality, tourism, and leisure operators face a distinct set of challenges. Many are asset-light businesses, with limited fixed infrastructure but deep value embedded in their teams, brand, and guest experience. Others have built up significant real estate holdings that underpin long-term stability. Across both models, EOTs offer a compelling solution that aligns with the sector’s operational and cultural realities.
Operators rely heavily on the frontline and back of house teams to deliver consistent, high-quality service. EOTs foster a sense of shared purpose and ownership, which can significantly improve employee engagement and retention. Critical in a sector where turnover is notoriously high and recruitment costs are rising.
For businesses that have built up real estate – such as hotels, resorts, pubs or leisure venues, EOTs can be particularly powerful. Property assets can:
- support external financing for the trust, using real estate as collateral
- enhance business valuation, making the transition more financially viable
- anchor long-term stability, especially when continuity of location is key to brand identity and guest loyalty.
Where a real estate asset is used as part of a trading business, by an owner-operator, for example, an EOT sale can allow the capital value of that asset to be realised free of capital gains tax.
Whether asset-light or asset-backed, EOTs offer a way to monetise value, protect culture and empower teams, all while preserving the independence and integrity of the business.
What to watch out for: challenges and risks
While EOTs offer compelling benefits, they’re not without complexity, particularly for hospitality, tourism and leisure operators.
Unlike a trade sale, where proceeds are typically paid upfront, EOT transactions are often funded over time using the company’s future profits. This means:
- founders may need to wait several years to receive the full value of their shares
- the pace of repayment depends on the business’s cash flow and profitability, which can be seasonal or volatile in hospitality.
Unlike a trade sale, where proceeds are typically paid upfront, EOT transactions are often funded over time using the company’s future profits. This means:
- founders may need to wait several years to receive the full value of their shares
- the pace of repayment depends on the business’s cash flow and profitability, which can be seasonal or volatile in hospitality.
EOTs allow founders to remain involved post-sale, often at board level. However:
- recent HMRC guidance (which came into effect in October 2024) requires that control at the trust level must be genuinely transferred, limiting the founder’s influence over trustee decisions
- this makes board composition and succession planning critical to ensure continuity without breaching compliance.
Introducing an EOT can affect the company’s existing financial structure as listed below.
- If the business has secured debt, lenders may need to approve the transaction, especially if real estate is involved.
- The EOT may require external financing, which could alter the capital stack or introduce new covenants.
- Operators must carefully model the debt serviceability of any new obligations alongside ongoing operational needs.
- Capital Gains Tax Relief Limitations: If investment property (i.e., property rented to third parties) represents more than 20% of the total business value, the company may not qualify as a trading entity potentially disqualifying the sale from CGT relief under EOT rules. In such cases, it may be advisable to separate investment property from the trading business prior to the EOT transaction.
- Whether property is let or owner-occupied, its ability to generate income over time is central to its valuation and the rate at which value can be extracted, which may depend on operational efficiency, market conditions and strategic use including financing.
- Success depends on transparent communication, strong leadership and a culture that supports shared responsibility.
- Employees may need support to understand their new role as beneficial owners, especially in operationally intense environments.
- EOTs must meet strict qualifying conditions to benefit from tax reliefs.
- HMRC clearance is advisable, particularly where there are complex ownership structures or real estate assets involved.
A people powered future: Is your business ready for the shift?
EOTs are more than a tax-efficient exit strategy, they represent a shift in how businesses think about value, legacy, and long-term success. For hospitality, tourism, and leisure operators, where people and culture are central to performance, EOTs offer a way to protect what matters most: your team, your brand, and your guest experience.
But transitioning to employee ownership is not a one-size-fits-all solution. It requires careful planning, robust valuation, and a deep understanding of both the operational and emotional dimensions of succession.
That’s where Crowe is uniquely positioned to help.
We bring together a best-in-class hospitality, tourism and leisure consulting practice through Horwath HTL, combined with:
- tax specialists who understand the intricacies of EOT legislation and HMRC compliance
- valuation experts who can assess both asset-light and asset-backed businesses fairly and credibly
- a corporate finance team experienced in structuring EOTs and alternative exit routes
- a succession advisory team that works with a wide range of owners and investors to ensure the right outcome for all stakeholders.
Together, this makes Crowe the most capable partner in the industry to help those who have invested heavily in building a business to also build the best legacy.
For guidance on whether an EOT is best for you and your organisation, please contact your usual Crowe contact.
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