Budget 2026 – Founder’s Relief is it the new Entrepreneur’s Relief?

The Government announced yesterday a technical consultation on a new Capital Gains Tax relief, Founder’s Relief, with legislation expected to be introduced in the Finance Bill 2026-27.

The Government announced yesterday a technical consultation on a new Capital Gains Tax relief, Founder’s Relief, with legislation expected to be introduced in the Finance Bill 2026-27. A consultation runs until 30 November 2026 to shape the new relief and it is intended to apply for qualifying disposals made on or after 6 April 2027.

The proposed Founder’s Relief would provide a 10% CGT rate on qualifying gains up to a lifetime cap of £10 million. The £10 million limit would however be reduced by amounts claimed under Business Asset Disposal Relief and Investor’s Relief after 6 April 2027.

Whilst this new relief sounds like it would be more generous with a huge lifetime limit which echoes the old Entrepreneur’s Relief, but in fact its eligibility criteria are much narrower and many businesses will not qualify. Businesses will need to prove meaningful growth, innovation and UK economic activity that may be difficult.

Company conditions

The company would need to:

• Be within the charge to UK corporation tax.
• Be a trading company, or holding company of a trading group.
• Avoid substantial non-trading or excluded activities.
• Have turnover of at least £10 million in the accounting period before disposal.
• Employ at least 15 qualifying full-time employees.

These conditions are intended to focus the relief on genuine scale-up businesses rather than passive investment structures or asset-holding companies.

Growth and innovation requirements

A key aspect of the proposed new relief is that companies must demonstrate both scale and success in order to be eligible. The company would need to satisfy at least 2 of 3 tests:-

·         Turnover growth test

Annual compound turnover growth of at least 25% across three consecutive accounting periods, starting from a turnover base of at least £10 million.

·         Employment growth test

Annual compound growth in qualifying employee numbers of at least 25% across three consecutive accounting periods, beginning with at least 15 qualifying employees.

·         Innovation test

At least £1.5 million of qualifying R&D expenditure on which the company has claimed UK R&D tax reliefs within a relevant period prior to disposal.

The Government’s intention is to focus the relief on businesses that create new products, technologies, services and jobs rather than simply appreciating in value.

The consultation is ongoing and so we have no insight as to what legislation will look like but founders planning a future exit or disposal are advised to keep an eye on any updates as it could influence those decisions

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