One of the eye-catching announcements from Budget 2026 was the introduction of a new Capital Gains Tax Founders’ Relief.
At first glance, the proposal sounds significant: a 10% rate of CGT on qualifying gains, with a lifetime limit of up to £10 million per individual, applying to qualifying disposals from 6 April 2027.
However, the technical consultation published alongside the Budget provides considerably more detail about who may actually qualify.
And the proposed conditions are quite demanding.
Who is the relief intended for?
Founders’ Relief is designed to apply to founders and significant early investors in UK companies that have demonstrated sustained growth and innovation.
Under the current proposals, an individual would need to have held at least 25% of the company’s ordinary share capital, together with corresponding voting, profit distribution and winding-up rights, when the relevant trading activity or preparation for that trade began.
The shares or securities would then need to have been held for at least five years, with the individual also having been UK resident for at least five continuous tax years before disposal.
But satisfying the founder conditions is only part of the test.
The company also has to qualify
The company would need to be within the scope of UK Corporation Tax and have a substantial UK presence for the five accounting periods before disposal.
It would also need to remain a qualifying trading company or group.
Importantly, the company would need to have generated at least £10 million of turnover and employed at least 15 qualifying full-time employees in the accounting period before the disposal.
Certain activities would be excluded, broadly following existing Enterprise Investment Scheme rules, including areas such as property development, dealing in land and financial services.
There is then a further growth and innovation test
The company would need to satisfy at least two of three additional tests.
Turnover: average compound annual turnover growth of at least 25% across three consecutive accounting periods within the ten years before disposal, starting from turnover of at least £10 million.
Headcount: average compound growth of at least 25% in qualifying full-time employees across three consecutive accounting periods, starting with at least 15 employees.
Innovation: at least £1.5 million of qualifying R&D expenditure together with valid R&D tax relief claims within the specified period.
This means the relief is not simply aimed at somebody who started, grew and subsequently sold a successful business.
Its proposed design appears focused much more narrowly on founders and significant early investors behind companies that can demonstrate substantial scale, sustained high growth and innovation against prescribed measures.
The £10 million headline also needs context
The proposed £10 million lifetime limit would apply per individual.
However, it would be reduced by relevant amounts claimed under the lifetime limits for Business Asset Disposal Relief and Investors’ Relief from 6 April 2027.
Claims would also require detailed evidence.
Some of that information may sit with the company rather than the founder, so the Government is considering giving individuals a statutory right to obtain information needed to support a claim.
There is another potentially important complication. If eligibility relies on, for example, an R&D tax relief claim and HMRC subsequently determines that the underlying company did not satisfy the relevant conditions, the founder could lose entitlement to Founders’ Relief and become liable for the additional tax plus interest.
Founders’ Relief compared with BADR
The announcement also needs to be considered alongside changes to Business Asset Disposal Relief.
From 6 April 2027, the BADR lifetime gains limit is due to reduce from £1 million to £500,000, while its 18% CGT rate is retained.
Founders’ Relief therefore potentially offers a substantially lower tax rate and a much larger lifetime limit, but only for founders whose circumstances and companies satisfy a much more restrictive set of proposed conditions.
That distinction is important.
Proposal rather than final legislation
The detail currently published forms part of a technical consultation, rather than the final legislation.
The consultation closes on 30 November 2026, after which the Government intends to introduce legislation through amendments to Finance Bill 2026-27, with the relief intended to apply to qualifying disposals made on or after 6 April 2027.
The consultation itself asks whether the proposed conditions effectively identify founders, whether there are practical difficulties or unintended consequences, and whether different criteria might provide a better way of identifying innovative companies.
The headline announcement may therefore have attracted considerable attention, but the technical detail paints a more nuanced picture.
For many business owners, the key question may ultimately prove not to be “What is the Founders’ Relief rate?”
It may be:
“Would I and my company actually satisfy all the qualifying conditions?”
Sarah Hogan FPFS, Company Director & Chartered Financial Planner