Several changes in Autumn Budget 2025 will have major implications for business owners looking to create employee incentivisation programmes, for those looking to secure investment and those who are considering selling their businesses.
The three changes with the greatest impact on business owners and investors were:
- Cutting the capital gains tax (CGT) relief on disposal to an employee ownership trust (EOT)
- Increasing the thresholds for enterprise management incentive (EMI) schemes
- Increasing the investment limits for enterprise investment schemes (EIS) and venture capital trusts (VCTs)
Employee ownership trusts
Perhaps the most unexpected cut, and possibly the most significant effect for owner-managed businesses, was to the CGT relief on the disposal of a business to an EOT.
Since the enacting of the Finance Act 2014, the sale of a business, under certain conditions, into a trust held on behalf of its employees has been completely exempt from paying CGT (generally 24% of the gain). As announced in this Budget, and effective immediately, such a sale is now only 50% exempt.
In addition, where CGT on the first £1m of a person’s lifetime gains is normally reduced to 14% (18% from April 2026) under business asset disposal relief (BADR), this will not be available on the taxable portion of the disposal to an EOT.
Therefore, in selling a business to an EOT, any gain is now taxed at an effective rate of 12%.
While there is still a tax incentive to sell into an EOT as opposed to, say, selling to a third party, this is a blow for owners who were already considering selling into an EOT and hadn’t yet concluded a transaction.
Other changes in Autumn Budget 2025 are more beneficial to businesses seeking to incentivise employees and to raise investment.
Enterprise management incentive schemes
Successive governments have been keen to promote the incentivisation of key employees through the granting of share options. Under an EMI scheme, an employee can be granted options over company shares at the market value at the time of receipt, with those options not being subject to income tax or national insurance contributions (employee or employer). Autumn Budget 2025 significantly raised the eligibility rules, allowing larger companies to offer this incentive:
Maximum total value
The limit on the value of all options that can be granted by a company under an EMI scheme has been increased from £3m to £6m.
Gross assets
Previously, these could be no higher than £30m to remain eligible; that threshold has been quadrupled, to £120m.
Maximum employees
Until now, this was limited to 250 employees to remain eligible. The limit has now been doubled, to 500 employees.
Exercise window
In the past, options granted under an EMI scheme have had to be exercised within 10 years. New EMI contracts issued after 6 April 2026, or existing contracts which have not yet expired or been exercised, will have an expanded window of 15 years.
Crucially, existing contracts will be allowed to be amended without losing the tax advantages.
PISCES
Typically, options granted under an EMI scheme are only exercisable at exit events, such as a sale or listing of the company, or a change of control. The new rules will allow contracts to be amended to include company shares being admitted to trade on PISCES (a type of stock exchange for private company shares) as an exercisable event, without losing the tax advantages.
This broad expansion of EMI eligibility will allow larger companies to take advantage and more people to benefit.
Enterprise investment scheme and venture capital trusts
A bedrock in any economy is the ability for startups and small, new companies to scale to become larger companies and support that economy. – particularly through investment.
For the last 30 years, EIS and VCTs (where investors buy shares in a publicly traded company which invests in startups) have been two popular ways for UK companies to attract investors. The 30% income tax relief on the initial investment, the 100% CGT relief on gains over the value of the investment, and the 100% tax relief on dividends received from VCTs, have been significant incentives for investors.
The changes to the EIS and VCT restrictions include:
Annual investment limit
Raised from £5m to £10m for regular companies, and from £10m to £20m for knowledge intensive companies (KICs; those in the research, development or innovation stage when issuing shares).
Lifetime investment limit
Doubled from £12m to £24m for regular companies, and from £20m to £40m for KICs.
Gross assets limit
Increased from £15m to £30m immediately before the issue of shares, and from £16m to £35m immediately after the issue.
Income tax relief
For VCTs only, this has been decreased from 30% to 20%.
What this means for ambitious businesses
The consequences to business owners of these announcements represent two sides of a coin.
On one side, EOTs, which previously offered a simpler, tax-free exit option, are now less attractive from a tax perspective.
However, for growth companies, the expansion of the EMI scheme is a material win. By raising the thresholds, the government is enabling later-stage, higher-growth or more established private companies to offer tax-advantaged incentives to employees. This becomes especially valuable where cash remuneration budgets are constrained or where equity upside is part of long-term retention strategy.
And by increasing the investment ceilings and gross-asset thresholds for EIS and VCTs, the Government is signalling support for follow-on capital raising in growing UK companies. From April 2026, businesses will be able to raise more capital under EIS and VCTs in larger rounds, giving scaleups more flexibility as they grow.
When compared to VCTs, EIS investment is inherently riskier: the investment is in a single company and if it fails then the investment is completely lost. As a VCT has a portfolio of investments, that risk gets spread over a number of companies.
Nevertheless, the reduction in income tax relief for VCTs is expected to have the effect of pushing investors towards EIS’s more direct investment in startups and early-stage businesses. This means that founders and managers of such companies will be able to benefit from the business insight and expertise that those investors can provide. Investor familiarity with the businesses and their founders also increases the likelihood of participation in future funding rounds.
Higher demand for investment in EIS-eligible businesses could potentially drive valuations higher.
How BKL can help
Our corporate finance team have a wealth of experience valuing SMEs across a range of industries, for a wide variety of needs, including:
- Acquisitions and disposals
- EOT disposals
- Shareholder exits
- Issuing share options or growth shares
- Fundraising
- Business valuations
For a chat about how we can help your business, get in touch with Daniel Shear or Mendy Shollar from our corporate finance team, or send us an enquiry.
