The 2026 Autumn Budget introduced Founders’ Relief, a capital gains tax break for founders selling their businesses. This relief offers a reduced CGT rate of 10% on gains up to £10 million, compared to the standard 24% rate. Founders’ Relief is specifically targeted at individuals who have played a significant role in founding the business and meet various eligibility criteria, aiming to support high-growth and innovative companies.
Who qualifies for Founders’ Relief?
To be eligible, founders must meet specific criteria. They need to have owned at least 25% of the company when it began trading and held those shares while being a UK tax resident for five years before the sale. This residency requirement may pose challenges for entrepreneurs who have relocated to the UK less than five years ago. Unlike other CGT reliefs, employment or directorship within the company isn’t required, making it more accessible to founders who have stepped back from day-to-day operations.
The company itself must also qualify. It needs to be within the scope of UK corporation tax, have a substantial UK presence for five years before the sale, and be a trading company with consistent activities. It must have achieved a £10 million turnover in the year before the sale and employ at least 15 full-time staff. These criteria align with those seen in other tax reliefs, such as Enterprise Investment Schemes (EIS), and exclude investment management and property companies.
High growth and innovation: Key requirements
A distinguishing feature of Founders’ Relief is its focus on high-growth and innovative businesses. The consultation defines this as 25% annual compound growth in either turnover or employees, along with research and development activity. This emphasis ensures the relief targets companies contributing significantly to economic growth and innovation.
This relief is currently under consultation, meaning the final qualifying criteria may evolve. The government anticipates up to 600 shareholders per year will benefit, representing less than 10% of annual business sales. For eligible founders, the potential tax saving could reach £1.4 million in CGT, providing a substantial incentive for qualifying businesses.
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The Autumn Budget’s focus on “start, scale and stay” led to the introduction of Founders’ Relief, incentivizing specific entrepreneurial behavior.
The relief is expected to come into effect on April 6, 2027.
Consultation and Evolution of Founders’ Relief
The exact terms of Founders’ Relief are still being finalized through a consultation process. This process allows interested parties to contribute their insights, potentially shaping the relief’s final form. As it stands, the criteria are narrowly defined, targeting a specific subset of entrepreneurs, particularly those in the larger end of small businesses and mid-sized companies.
Comparison with Existing CGT Reliefs
Founders’ Relief is one of several CGT reliefs available to UK entrepreneurs. It complements existing reliefs like Business Asset Disposal Relief (BADR), which offers a reduced CGT rate of 18% on gains up to £1 million. However, BADR is set to become less generous, with the lifetime limit halving to £500,000 from April 6, 2027. For share disposals under BADR, the shareholder must also be an employee and/or company officer and own more than 5% of the company shares, a requirement not present in Founders’ Relief.
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