Founders' Relief: the Proposed Capital Gains Tax Relief for High-Growth Company Founders

Founders' Relief is a proposed new Capital Gains Tax relief for founders and significant early investors in high-growth, innovative UK companies. It was announced at Budget 2026, and a technical consultation on its design was launched on 28 October 2026 and closes on 30 November 2026. It is not yet law: legislation is to be introduced through the Finance Bill 2026, and the detail may change before then (GOV.UK).

Under the proposals, qualifying disposals of shares made on or after 6 April 2027 would attract a reduced Capital Gains Tax rate of 10 per cent, up to a lifetime limit of £10 million of eligible gains per individual. That limit would be reduced by any Business Asset Disposal Relief or Investors' Relief claims made from 6 April 2027 (GOV.UK).

This is a different measure from Business Asset Disposal Relief, the existing relief most SME owners rely on when they sell. BADR has a £1 million lifetime limit and conditions built around a 5 per cent shareholding and two years of involvement in the business. Founders' Relief is aimed at a much narrower group and has demanding growth and innovation tests.

For the typical owner of an established trading business, the practical conclusion is straightforward: plan your sale around the reliefs that exist today, and treat Founders' Relief as relevant only if your company genuinely meets the high-growth profile described below.

The relief would be claimed through the individual's Self Assessment tax return, with additional information required through a supplementary form (GOV.UK). If you are weighing up a sale, our guide to selling a business explains the overall process, and the sale process section covers each stage in detail.

Under the consultation proposals, the individual would need to meet all of the following conditions (GOV.UK):

• have held at least 25 per cent of the company's ordinary share capital at the point when the trading activity for which the company was formed, or the preparation for that trade, commenced;
• have held the shares or securities for at least five tax years before the disposal; and
• have been UK resident under the Statutory Residence Test for at least five continuous tax years before the disposal.

The company would also need to meet its own conditions for a subsequent disposal to qualify (GOV.UK):

• be within the scope of UK Corporation Tax (UK-resident for Corporation Tax purposes, or carrying on business in the UK through a permanent establishment) and have had a substantial UK presence for the five accounting periods before the disposal;
• be a trading company, or the holding company of a trading group, without substantial non-trading or non-qualifying trading activities;
• have continued the trade it was established for when the founder's shares were issued, with no major change in the nature of the trade; and
• meet the scale and growth tests set out in the next section.

Trading activities in certain sectors, the same as those excluded by the Enterprise Investment Scheme, would not qualify; these include companies dealing in land, financial services or property development. Companies may be listed or unlisted (GOV.UK).

There would also be rules to tackle avoidance and to make sure the individual has access to the necessary company records to support a claim (GOV.UK).

As well as the conditions above, the company would need to meet a scale test and at least two of three growth and innovation conditions (GOV.UK):

• Scale: turnover of at least £10 million and at least 15 qualifying full-time equivalent employees in the accounting period ending in the year before the disposal.
• Turnover growth: annual average compound growth in turnover of 25 per cent across three consecutive accounting periods within the ten years before the disposal, with turnover of at least £10 million in the accounting period before the first of those three periods.
• Employee growth: annual average compound growth of at least 25 per cent in qualifying full-time equivalent employees across three consecutive accounting periods within the ten years before the disposal, with at least 15 full-time employees in the accounting period before the first of those periods.
• Innovation: qualifying expenditure of at least £1.5 million on research and development for which the company met all the conditions to make an R&D tax relief claim, with the relief claimed for accounting periods ending within the three years before the disposal.

These tests are deliberately demanding. The government estimates that around 600 individuals a year would be eligible to claim the relief, across roughly 400 companies (GOV.UK).

The proposals are written for a specific population: companies that have grown at venture-capital pace. An established business with steady turnover, a stable workforce and a long trading history is exactly the kind of business the tests are designed to exclude.

The main reasons a typical owner-managed business would fall outside the proposals are:

• the company has not grown turnover or employee numbers at the required compound rate over three consecutive accounting periods;
• the founder's shareholding, holding period or UK residence history does not meet the proposed tests;
• the company's trade has changed materially since the shares were issued; or
• the disposal takes place before the relief comes into effect, or the legislation changes before it is enacted.

None of this is a criticism of the business. It simply means the planning focus for most owners stays on Business Asset Disposal Relief, the structure of the deal and the timing of completion, rather than on a relief designed for a different kind of company.

If you are planning a sale in the next few years, the sensible approach is to take advice on the position as it stands today. Business Asset Disposal Relief, Investors' Relief, rollover and holdover reliefs, and the way the consideration is structured will almost always matter more to your net proceeds than a consultation-stage proposal.

That said, the consultation is worth knowing about for two reasons. First, it signals the direction of policy: successive governments have continued to support reliefs that reward building and selling businesses, even as the rates and limits change. Second, if your company genuinely is a high-growth business, the proposals would only apply once enacted, and then only to disposals on or after 6 April 2027, so timing advice from a tax adviser is essential before you rely on them.

If you are weighing up your options, our Exit Options Review is a confidential way to talk through your plans, and the business value section explains how price, structure and tax interact to determine what you actually receive.

This page is general information, not tax advice, and describes proposals that may change before they become law. Always take advice from a qualified tax adviser before acting.