The 2026 Budget included a package of measures aimed at founders, entrepreneurs and scaling businesses. One headline announcement was Founders’ Relief, offering a 10% Capital Gains Tax rate on up to £10 million of qualifying gains from 6 April 2027.
That sounds generous. But the proposed qualifying conditions set a high bar. This is not simply Entrepreneurs’ Relief or Business Asset Disposal Relief under a new name.
A high threshold for growing businesses
A company must first satisfy a number of conditions. In the accounting period immediately before the founder’s disposal, it must have:
- turnover of at least £10 million; and
- at least 15 qualifying full-time employees (excluding directors, contractors and workers).
Those are substantial thresholds. A business generating £10 million of turnover with at least 15 full-time employees may already look more established than early-stage.
They also raise a broader question: what about successful founder-led businesses that simply do not fit this model? A profitable, valuable technology business might operate with a relatively small workforce, while another business may achieve a substantial valuation well before reaching £10 million of annual turnover.
If the objective is to encourage entrepreneurs to start and scale successful businesses in the UK, rigid turnover and headcount thresholds risk excluding businesses that have done precisely that.
The founder must also demonstrate that company satisfies at least two of three growth and innovation conditions:
- Turnover: 25% compound annual turnover growth over three consecutive accounting periods within the 10 years before disposal, starting from turnover of at least £10 million.
- Headcount: 25% compound annual growth in qualifying FTE employees over three consecutive accounting periods within that period, starting from at least 15 employees.
- Innovation: at least £1.5 million of qualifying R&D expenditure for which R&D tax relief has been claimed in accounting periods ending within three years before disposal.
The interaction between the company and growth conditions is arguably the most puzzling feature of the proposals. The company must have £10 million of turnover and 15 employees in the accounting period immediately before disposal, but the growth tests also use those figures as the starting point for three years of 25% compound growth (which the company must meet for at least one of them). That combination of baseline and threshold makes the regime unusually restrictive. If a company must already demonstrate substantial growth from at least one of those baselines, do the fixed £10 million turnover and 15-employee conditions immediately before disposal add much? How useful is the innovation R&D limb likely to be if the company must still meet both fixed thresholds before disposal?
Reducing the starting baselines for the growth conditions, or reconsidering the fixed pre-disposal thresholds, could sensibly broaden the relief without undermining its policy focus on genuinely high-growth businesses.
Who counts as a founder?
The individual must have held at least 25% of the company’s ordinary share capital, together with corresponding voting, distribution and winding-up rights, when the trade or preparations for it commenced. They must also have held the shares or securities for at least five years and have been UK resident for at least five continuous tax years before disposal.
Importantly, subsequent dilution below 25%, for example following external investment, does not seem to prevent relief if the other conditions are met. That could be crucial for founders of scaling businesses, although the position needs to be made clear.
Helpfully, relief would not be limited to the founder’s original shares. It could apply to all shares disposed of by a qualifying founder, provided the relevant conditions are satisfied.
What happens when businesses pivot?
The company must continue the trade for which it was established without a major change in the nature of that trade. That potentially sits awkwardly with commercial reality. Successful businesses pivot, develop new products, enter new markets and respond to technological and economic change. Greater clarity will be needed on how far a business can evolve before its success takes it outside the relief.
There is similar uncertainty around the requirement for a “substantial UK presence” throughout the five accounting periods before disposal. What constitutes a substantial UK presence remains to be established.
Practical problems on an exit
The founder will claim the relief through their Self-Assessment return, but much of the evidence needed to establish entitlement will sit with the company.
The Government is therefore considering giving founders a statutory right to obtain relevant information and supporting documents. That could be particularly important following a sale, when the founder may no longer control the company.
There is also a difficult interaction with the R&D test. If an R&D claim is subsequently challenged or withdrawn, that could potentially undermine the founder’s entitlement to Founders’ Relief. The Government recognises that this needs further consideration.
Out of reach?
A 10% CGT rate and £10 million lifetime limit make Founders’ Relief potentially very valuable. But, as currently proposed, it appears targeted at a relatively narrow group of founders who have built substantial and exceptionally fast-growing businesses.
The consultation therefore matters. In particular, further thought is needed on the interaction between the fixed company thresholds and growth tests, alongside greater clarity on dilution, business pivots, substantial UK presence and reliance on R&D claims.
If the aim is to make the UK more attractive as a place to start and scale a business, the key question is whether the eventual conditions are sufficiently flexible to recognise the different ways in which successful businesses actually grow.
The consultation is short: It closes on 30 November 2026, with the relief intended to apply to qualifying disposals from 6 April 2027.
