Budget brings tax relief for business founders
Chancellor John Healey has delivered his first Budget, which includes several key plans for high-growth businesses. One of the main announcements is the introduction of Founders’ Relief, a 10% capital gains tax rate on lifetime gains of up to £10 million for the founders of successful firms, starting from April 6, 2027.
Founders would need to have owned at least a quarter of the company from the start, while their companies would need at least £10 million turnover and 15 full-time staff, and to pass two of three tests on turnover growth, headcount growth and R&D.
Support for Scale-Ups
The government wants to simplify administration for R&D tax reliefs to make them easier to access. To expand on the existing employee ownership schemes, an EMI2 (formerly CSOP) scheme is being launched. The idea with EMI2 is to double the value of tax-advantaged options that employees can hold, going from £60,000 to £120,000.
Lowering the limit for Business Asset Disposal Relief The lifetime limit for Business Asset Disposal Relief will be reducing from £1 million to £500,000 from April 2027.
The government will be giving £5 billion to the British Business Bank to fund innovative start-ups and scale-ups. This includes £1.4 billion to invest in equity funds backing high-growth businesses and £450 million for a new venture debt product that will provide non-dilutive finance to innovative firms.
Access to Capital
Through the Mansion House Accord, £25 billion will be unlocked from UK private markets (including pension providers and asset managers), to accelerate capital deployment to high-growth businesses. The government is launching a scale-up women’s programme to provide practical support to women entrepreneurs across the UK.
The British Business Bank has a pipeline of commitments to women-led funds of over £100 million. The government is also expanding the High Potential Individual and Graduate visas to support applicants with eligible qualifications from the top 150 of the world’s best institutions.
Legislation will be created to ensure that non-compete clauses aren’t a major barrier for hiring in UK businesses across the economy. The expansion of the Sovereign AI procurement scheme will provide an extra £80 million to support innovative AI companies.
Philip Salter, Founder of The Entrepreneurs Network, commented on the Founders’ Relief and Business Asset Disposal Relief, saying that the technical consultation points towards a very narrow definition of eligible founders, and that the lifetime limit on Business Asset Disposal Relief is being halved.
Stuart Weekes, partner and head of manufacturing at Crowe, welcomed the simplification of R&D tax relief administration, but noted that the government has missed the opportunity to improve the benefit for claimants and make the regime more competitive.
Sophie Catto, managing director of theALLBRIGHT everywoman, said: “I would like to see greater recognition of the practical barriers women face when building businesses, particularly the cost of childcare, caring responsibilities and the challenge of accessing the right networks and commercial opportunities.”
Dame Anne Glover, CEO and co-founder of Amadeus Capital Partners, noted that the government is right to recognize the need to make Britain a more attractive place for building and scaling companies, and that a meaningful capital gains incentive is one of the clearest ways to reward entrepreneurs.
Jasmin Dhillon, employment law partner at Spencer West LLP, commented on the proposed restriction of non-compete clauses, saying that it could make it easier for businesses to attract experienced talent and encourage greater innovation and competition, but that the detail will be key in ensuring that employers still have effective means of protecting their legitimate commercial interests.
Additional funding will be allocated to support innovative AI companies, including a £25 million AI and Cyber Security Challenge Fund. This fund aims to support UK innovation in AI and cyber security.
The scheme will back innovative AI companies to develop solutions to challenges across the health and care system, AI security, and safe adoption, as well as delivering innovative approaches to warfighting.
Implementation and Next Steps
The Scale UK – Connect pilot will provide tailored support to 200 high-growth businesses across the UK, helping them to access existing support and resources.
