New tax relief for business founders announced
The 2026 Autumn Budget introduced Founders’ Relief, a capital gains tax (CGT) relief for individuals who have played a significant role in founding a business. This relief will provide a reduced rate of CGT at 10% on a lifetime allowance of £10 million, compared to the main rate of 24%.
According to local reports, the exact terms of Founders’ Relief are still being finalized, but it is expected to come into effect from April 6, 2027. To qualify, shareholders must have held 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.
Eligibility Criteria
There is no requirement for the shareholder to be an employee or director of the business to qualify for the relief. However, the company must meet certain criteria, including being within the scope of UK corporation tax, having a substantial presence in the UK, and being a trading company with no change in activities throughout.
The company must also have reached a turnover of £10 million in the accounting period prior to disposal and employ at least 15 full-time staff. Additionally, the company must be high growth and innovative, with annual compound 25% growth in either turnover and/or employees, as well as meeting certain research and development criteria.
As the relief is currently subject to a consultation, the qualifying criteria may evolve prior to implementation. The government has asked for interested parties to contribute to the consultation to help shape the relief. It is estimated that up to 600 shareholders per year will be eligible for the relief, which could be worth up to £1.4m in CGT.
Founders’ Relief is part of the government’s ‘start, scale and stay’ policy, which aims to support start-up and high-growth entrepreneurial businesses. This policy is a key aspect of the Autumn Budget 2026, which includes several measures to incentivize entrepreneurial behavior.
Comparison to Existing Reliefs
In the UK, there are existing CGT reliefs targeted at entrepreneurs, such as Business Asset Disposal Relief (BADR), which gives a reduced CGT rate of 18% on a lifetime limit of £1 million of gains. However, the lifetime limit for BADR will be halved to £500,000 from April 6, 2027, reducing the potential tax saving from £60,000 to £30,000.
The introduction of Founders’ Relief may incentivize entrepreneurs to bring forward their potential sales to this tax year to maximize the current BADR relief. The newly announced Founders’ Relief is expected to provide significant tax savings for eligible shareholders, with the potential to save up to £1.4m in CGT.
The government‘s decision to introduce Founders’ Relief, rather than aligning CGT rates with income tax rates, suggests a focus on incentivizing particular entrepreneurial behavior. The relief’s narrow qualifying criteria may limit its impact, but it is likely to be welcomed by eligible founders and shareholders.
For companies to qualify, they must have a substantial presence in the UK for the five accounting periods before disposal.
This sets out a clear expectation for the type of businesses the government aims to support.
