- Founders’ Relief, a capital gains tax (CGT) relief targeted at individuals on a sale who have played a significant role in founding the business who meet various eligibility criteria.
- Where available, there will be a reduced rate of CGT at 10% (compared with the main rate of 24%) on a lifetime allowance of £10 million.
- The exact criteria for this relief are currently subject to a consultation although it is expected to come into effect from April 6, 2027.
- In terms of the shareholder themselves, they need to hold at least 25% of the company when it started trading and have owned the shares as well as being a UK tax resident for at least five years before the sale.
- There is no requirement for the shareholder to be an employee or director of the business in order to qualify for the relief.
One of themes of the Autumn Budget 2026 was ‘start, scale and stay’ where a number of measures were introduced to support start-up and high-growth entrepreneurial businesses.
A key announcement was the introduction of Founders’ Relief, a capital gains tax (CGT) relief targeted at individuals on a sale who have played a significant role in founding the business who meet various eligibility criteria. Where available, there will be a reduced rate of CGT at 10% (compared with the main rate of 24%) on a lifetime allowance of £10 million. The exact criteria for this relief are currently subject to a consultation although it is expected to come into effect from April 6, 2027.
The proposed conditions of Founders’ Relief
In terms of the shareholder themselves, they need to hold at least 25% of the company when it started trading and have owned the shares as well as being a UK tax resident for at least five years before the sale. This does seem to allow for dilution of the founder’s interest over time but may cause some challenges for entrepreneurs who have relocated to the UK less than five years ago, as they may not be eligible for the relief. Unlike other CGT reliefs, there is no requirement for the shareholder to be an employee or director of the business in order to qualify for the relief.
The company also has to meet a number of criteria in order for the shareholder to qualify for Founders’ Relief. The company needs to be within the scope of UK corporation tax and have a substantial presence here for the five accounting periods before disposal and it must be a trading company with no change in activities throughout. These are criteria that we have seen before in other tax reliefs such as Enterprise Investment Schemes (EIS) so are not a surprise. There is the usual carve-outs for businesses that manage investments as well as property companies.
Turnover also has to have reached £10 million in the accounting period prior to disposal and the company must employ at least 15 full-time staff. This relief is focused on the larger end of small businesses and mid-sized businesses. One of the distinguishing factors of this relief is the requirement for the company to be high growth and innovative. The consultation sets this out as business with annual compound 25% growth in either turnover and/or employees as well as some innovation criteria regarding research and development.
As this relief is currently subject to a consultation, it is likely that the qualifying criteria will evolve prior to implementation. The government has asked for interested parties to contribute to the consultation to help to shape the relief. As currently drafted, the qualifying criteria are very narrowly targeted so advice should be sought before assuming that relief would be available. The government’s announcement indicates that they expect up to 600 shareholders per year to be eligible for the relief which is less than 10% of the business sales in any given year, so it is unlikely to move the dial significantly for many.
For founder/shareholders that do qualify for the founder relief, this could be worth up to £1.4m in CGT.
Business Asset Disposal Relief
In the UK there have been a number of CGT reliefs targeted at entrepreneurs over the years. It is currently called Business Asset Disposal Relief (BADR) which gives a reduced CGT rate of 18% on a lifetime limit of £1 million of gains. This also applies to trading companies and unincorporated businesses. For share disposals the shareholder also has to be an employee and/or company officer and own more than 5% of the company shares. This has been more generous in the past and it was announced in the Autumn Budget that the lifetime limit will be halved to £500,000 from April 6, 2027, which reduces the potential tax saving from £60,000 to £30,000. This may incentivise entrepreneurs to bring forward their potential sales to this tax year where they can in order to maximise the current BADR relief.
There were a number of rumours in the run-up to the Autumn Budget that there would be an alignment of CGT rates with income tax rates but as part of the governments ‘start, scale and stay’ policy, they have instead chosen to incentivise particular entrepreneurial behaviour. Whether the newly announced Founders’ Relief goes far enough given that the qualifying criteria are so narrowly defined only time will tell.
Jo Bateson is tax partner at Mercer & Hole.
Read more about the Autumn Budget
Autumn Budget 2026 – key plans for high-growth businesses – Look no further for the essential announcements affecting high-growth businesses and scale-ups in the Autumn Budget 2026
