Founders’ Relief
Founders’ Relief
The Chancellor announced his intention in the 2026 Budget to introduce a new Capital Gains Tax (CGT) Relief for Founders as part of the Government’s support for UK start-ups and scale-ups. The Government is consulting on the relief and its conditions, with the final legislation expected to be added to the Finance Bill shortly before it is enacted early in 2027 – so watch this space as the qualifying conditions may yet change.
What is Founders’ Relief?
Under the current proposals, for qualifying disposals made on or after 6 April 2027 Founders’ Relief will provide a 10% CGT rate on qualifying gains, subject to a lifetime limit of £10m. This results in a maximum tax saving of £1.4m when compared to the current CGT rate of 24%.
Founders’ Relief eligibility
Founders’ Relief will only be available on the disposal of shares. To qualify, an individual will need to meet ownership and residence conditions. The individual must have held at least 25% of the company’s ordinary share capital from the date the company began trading and held their shares for at least five years ending on the date of disposal. The individual must also have been UK tax resident for five continuous tax years before the disposal. We understand that the 25% test does not need to be met at the date of sale.
The company being disposed of needs to meet trading, UK presence and scale conditions. This means being a UK resident trading company, having a turnover of at least £10million in the accounting period prior to the disposal, and employing at least 15 full-time employees. The company will also need to satisfy two out of the three growth and innovation conditions: a 25% annual increase in turnover, 25% annual increase in employee headcount, and spending at least £1.5million on qualifying research & development.
For many founders, one of the most problematic conditions in practice will be that there must have been no “major change in the nature of the trade” between the date the company was established and the date of sale.
Who will benefit from Founders' Relief?
These conditions mean that the relief will be narrowly targeted at individuals who have founded and scaled innovative businesses in the UK. The Government’s own financial forecasts make clear it is only expecting limited numbers of founders to qualify as the proposals currently stand. It also seems to focus on young businesses rather than those that have been running for many years: for example, the ‘no major changes in the trade’ rule may be hard to meet for most long established businesses.
In responding to the consultation on these proposals, BDO and others will be suggesting that the qualifying rules need to be both simplified and relaxed so that the relief is accessible to a wider range of business owners.
How does Founders’ Relief interact with Business Asset Disposal Relief?
Alongside the introduction of this new relief, the lifetime limit for Business Asset Disposal Relief (BADR), will be reduced from £1m to £500,000 for disposals made on or after 6 April 2027. BADR provides an 18% CGT rate on qualifying disposals.
These proposed changes add another layer of complexity for entrepreneurs who are considering an exit. Business owners should seek advice early on to understand whether they qualify for Founders’ Relief and the impact of the reduction in BADR.
Are you considering an exit?
If you’d like to understand whether you’re eligible for BADR or Founders’ Relief, please get in touch. Even if you do not qualify for these specific reliefs, there may still be options available to structure your disposal tax-efficiently. Getting specialist advice well in advance of any sale is the best course of action.
You can get in touch with our team of entrepreneurial tax experts, who will be happy to help.