Founders Relief, Will I Qualify?

Introduction

Today’s Budget introduced a new tax relief for business owners: Founders’ Relief. If you qualify, you could pay just 10% Capital Gains Tax on up to £10 million of gains when you sell your shares.

That is a big headline. Most business owners selling today pay 18% on their first £1 million of qualifying gains under Business Asset Disposal Relief (BADR), and 24% on the rest.

But the same Budget also halved the BADR limit, from £1 million to £500,000. So the question every founder is now asking is simple: will I qualify?

The honest answer is that it depends, and some of the rules may still change before they come into force. Here is what we know so far, what we don’t, and what it could mean for your exit.

This article is based on the Budget announcement and HM Treasury’s technical consultation published on 28 October 2026. It is general information, not tax advice.

Key Takeaways

• Founders’ Relief offers a 10% CGT rate on up to £10 million of lifetime gains, for qualifying share sales on or after 6 April 2027.
• It is aimed at founders and early investors in high-growth, innovative UK companies, and the proposed tests are demanding.
• You will likely need to have held at least 25% of the shares from the start, with the company turning over £10 million+ and employing 15+ full-time staff, plus pass two of three growth and innovation tests.
• The rules are out for consultation until 30 November 2026 and could still change.
• From 6 April 2027, the BADR lifetime limit falls from £1 million to £500,000, cutting the maximum saving from £60,000 to £30,000.
• Tax matters, but it rarely outweighs getting the right value and the right deal. Plan early and take advice.

What Is Founders’ Relief?

Founders’ Relief is a new Capital Gains Tax relief announced by Chancellor John Healey in the Budget on 28 October 2026.

It will apply a 10% rate of CGT to qualifying disposals of shares, up to a lifetime limit of £10 million of gains per person. Because the limit is per individual, more than one founder in the same company could claim it.

Compared with the standard 24% rate, that is a potential saving of up to £1.4 million per founder.

A few headline points:

• Start date: qualifying disposals made on or after 6 April 2027.
• Who it is for: founders and significant early investors in high-growth, innovative UK companies.
• Interaction with other reliefs: the £10 million limit will be reduced by any amounts claimed under BADR and Investors’ Relief from 6 April 2027.
• How you claim: through your Self Assessment tax return for the year of the sale, possibly with a standard supporting form.

The government has published a technical consultation setting out the proposed rules. Legislation is expected through the Finance Bill 2026-27.

Will I Qualify? The Conditions for You as a Founder

Under the current proposals, you would need to meet three personal conditions:

• You held at least 25% of the company’s ordinary shares when it started trading (or started preparing to trade), with matching voting and economic rights.
• You have held your shares for at least five years before the sale.
• You have been UK resident for tax purposes for at least five continuous tax years before the sale.

There is some good news in the detail. Once you qualify, all of your shares count, not just the ones you were issued at the start. The 25% can also be held through a holding company, and the relief is only available to individuals.

Who might fall at the first hurdle?

The 25% “from day one” test is where many owner-managed businesses could struggle. As the rules stand, it looks difficult to qualify if you:

• Bought the business from a previous owner, including through a management buy-out.
• Inherited or took over a family company that was already trading.
• Started with less than 25%, for example as one of five equal co-founders.
• Have recently lived abroad, and so cannot show five continuous years of UK residence.

These are exactly the kinds of details the consultation may refine, so it is worth keeping an eye on the final rules.

Will My Business Qualify? The Company Conditions

Even if you pass the personal tests, your company also has to meet five conditions. As proposed, it must:

• Be within the scope of UK Corporation Tax, with a substantial UK presence for the five accounting periods before the sale.
• Be a trading company (or the holding company of a trading group), without substantial non-trading activities or “excluded” activities.
• Still be carrying on the trade it was set up for, with no major change in the nature of that trade.
• Have turnover of at least £10 million in the accounting period before the sale.
• Employ at least 15 qualifying full-time employees in that same period. That means people working 35+ hours a week on at least the National Minimum Wage. Directors, contractors and agency workers do not count.

Three points worth noting

Excluded activities. The excluded list will mirror the Enterprise Investment Scheme. The consultation gives dealing in land, financial services and property development as examples. The current EIS list also covers areas such as legal and accountancy services, farming, and running hotels or care homes.

A change of direction. If your business has evolved significantly from what it was originally set up to do, the “same trade” condition could become a sticking point.

Scale. A £10 million turnover floor and 15 full-time employees will rule out many smaller owner-managed businesses, however profitable they are.

The Growth and Innovation Tests

This is the part that makes Founders’ Relief very different from BADR. Your company must also prove sustained high growth or innovation by passing at least two of these three tests:

• Average compound turnover growth of 25% a year across three consecutive accounting periods within the 10 years before the sale, starting from turnover of at least £10m
• Average compound employee growth of 25% a year in qualifying full-time employees over three consecutive periods within the 10 years before the sale, starting from at least 15
• At least £1.5m of qualifying R&D spend, with R&D tax relief claimed, for periods ending within the three years before the sale

The tests are measured from a minimum base, so early growth from a small starting point will not count.

What does this mean for most owner-managed businesses? A steady, profitable company growing at 5% to 10% a year is unlikely to meet these tests, even if it is an excellent business that buyers would pay well for.

For many, the most realistic route will be the turnover and headcount tests together, as fast-growing businesses usually hire as they scale. Companies with significant R&D spend have a second route.

The 10-year window does help. A business that went through a period of rapid growth some years ago may still pass, even if growth has since levelled off.

Before you can work out what the relief might be worth, you need a realistic view of what your business is worth. Our Business Valuation Calculator is a quick starting point, and our guide How Much Is My Business Worth? explains how buyers arrive at a figure.

What We Don’t Know Yet

It is important to remember that these are proposals, not law. The consultation closes on 30 November 2026, and HM Treasury has said it will use the responses to finalise the design. Questions still to be answered include:

• Will the thresholds move? The 25% shareholding, £10 million turnover, 15 employees and 25% growth rate could all be adjusted.
• How will “the start of trading” be evidenced? For a business founded 20 or 30 years ago, proving your shareholding on day one may not be straightforward.
• Can you get the records you need after you sell? You claim the relief in your tax return after the sale, by which point the buyer owns the company. The government is proposing a legal right for founders to request the information they need from the company.
• How will it work alongside BADR? We know the limits offset each other, but not exactly how the two reliefs will apply to the same sale.
• What about earn-outs and deferred consideration? Many SME deals include payments over time. How these will be treated is not yet clear.
• What will the anti-avoidance rules say? Targeted rules are planned to stop restructuring designed to bring a business within the relief. Their detail could affect group reorganisations before a sale.
• What if HMRC challenges the company’s R&D claims? If a condition you relied on later falls away, you could lose the relief and have to pay the extra tax with interest.

There is also the wider point that tax rules can change at any Budget. The BADR limit has now been cut twice in six years. Building your exit plan around a relief that does not yet exist in law carries some risk.

The Other Budget Change: BADR Cut to £500,000

For most owner-managed businesses, the more immediate change is to Business Asset Disposal Relief, previously known as Entrepreneurs’ Relief.

From 6 April 2027, the lifetime limit falls from £1 million to £500,000 of qualifying gains. The limit applies to your gains, not the sale price of the business. The BADR rate stays at 18%, with gains above the limit taxed at up to 24%.

In practical terms:

• The maximum lifetime saving halves, from £60,000 to £30,000.
• It is a lifetime limit, so any BADR you have claimed on earlier sales counts towards it.
• Any BADR you claim from 6 April 2027 will also reduce your Founders’ Relief limit.

The Chancellor said three in four BADR claimants will see no change. That is likely to be true for smaller disposals. But for owners of the businesses we typically work with, where gains often run into millions, it means paying the full extra £30,000.

It is also a continuing trend. The relief once covered £10 million of gains. It fell to £1 million in 2020 and will now halve again.

Should I Sell Before April 2027?

It is a fair question. If you complete a sale before 6 April 2027, you can still use the full £1 million BADR limit.

But be careful not to let a £30,000 tax difference drive a decision worth millions.

A well-run sale process typically takes six to twelve months, so a business coming to market today could already be close to the deadline. Rushing a sale to beat it can cost far more than it saves. On £1 million of EBITDA, a valuation just half a times multiple lower is a £500,000 difference in price.

The things that move your outcome most are usually:

• The value buyers place on your business, and whether the process creates genuine competition.
• The deal terms, including how much is paid on completion versus deferred or earn-out payments. Our article on Heads of Terms explains why these matter.
• How well prepared you are for buyer scrutiny. See our guides to Quality of Earnings reports and due diligence.

Timing still matters, and for CGT the date of disposal is usually when an unconditional contract is signed, not when you are paid. If timing is part of your thinking, speak to your tax adviser early.

And if your business is on a strong growth path, the opposite question may be more valuable: could you build towards Founders’ Relief? Meeting the growth tests could be worth far more than the BADR you would lose by waiting. Our article on growing your business before selling and our Growth for Exit page are good places to start.

What Should You Do Now?

Whether or not you think you will qualify, today’s Budget is a good prompt to review your exit plans. A few practical steps:

• Check the basics. What did you own when the business started trading? How long have you held your shares? Have you claimed BADR before?
• Look at your numbers. Pull your turnover and full-time headcount for the last ten years and see whether any three-year run gets close to the growth tests.
• Understand what your business is worth. Tax is calculated on your gain, so value comes first.
• Don’t rush. The rules are not final. Avoid restructuring or bringing forward a sale purely on the strength of a consultation.
• Get the right advice in the room. Your tax adviser and your M&A adviser should be working together.

If you are not sure where you stand, our Exit Readiness Assessment highlights the areas buyers will focus on, and Preparing for Exit Starts Earlier Than You Think explains why the best outcomes are planned years ahead.

Talk to Entrepreneurs Hub

Founders’ Relief could be a significant opportunity for some business owners. For others, the BADR cut simply means the price and terms you achieve matter even more.

Either way, maximising the value of your business is still the biggest lever you control.

At Entrepreneurs Hub, we are former business owners who now help founders sell owner-managed businesses. We work alongside your accountant and tax adviser to make sure the deal you agree works for you after tax, not just on paper.

As one of our clients, Trends, put it:

“Most business owners are not experts in M&A, so get someone to help you.

And from Optimal Industrial Automation, on the outcome of their sale:

“I truly believe that we got a better price by working with Entrepreneurs Hub than running alone.”

You can hear more from the owners we have helped in our client videos and read about our recent deals.

Want to understand what the Budget means for you and your business? Contact us to arrange a confidential conversation with one of our Directors. We will help you work out where you stand, what your business could be worth, and how to plan an exit that maximises what you take away.