Budget 2026: Capital Gains Tax – Founders Relief

The Chancellor announced that from April 2027, the disposal by a Founder of their interest in a business would be subject to tax at 10% on the first £10 million of their gain.  The £10 million is reduced by any Business Asset Disposal Relief or Investors’ Relief used from 6^th April 2027 onwards.  It is a shared limit, not an extra one.

As with all reliefs, there are conditions.

Individual conditions (all three required)

• Held at least 25% of ordinary share capital, with matching votes and economic rights, when the trade the company was formed for began, or when preparation for that trade began
• Held the shares or securities for at least five years before disposal
• UK resident under the Statutory Resident Test for at least five continuous tax years before disposal
• Once someone qualifies, relief covers all their shares, including shares acquired later. It is not limited to the original founding holding
• The 25% test can be met through the holding company of a trading group

Company conditions (all required)

• Within the scope of UK Corporation Tax, either UK resident or trading through a UK permanent establishment. It must also have a substantial UK presence for the five accounting periods before disposal
• A trading company or holding company of a trading group, without substantial non-trading or excluded activities. Excluded activities follow the Enterprise Investment Scheme (EIS) list, so dealing in land, property development and financial services are out
• Still carrying on the new trade it was set up for, with no major change in its nature. Any other trades are treated much like excluded trades
• Turnover of at least £10 million in the accounting period before disposal
• At least 15 qualifying full-time employees in that period. That means 35+ hours a week and paid at least National Minimum Wage. Directors, contractors and agency workers don’t count

Growth and innovation tests (any two of three)

1. Turnover: 25% average compound annual growth over three consecutive accounting periods within the 10 years before disposal. Turnover must be at least £10m in the period before the first of the three
2. Headcount: 25% average compound annual growth in qualifying FTEs over three consecutive periods within the same 10 years. There must be at least 15 FTEs in the period before the first of the three
3. Innovation: at least £1.5m of qualifying R&D expenditure, with R&D relief actually claimed for periods ending within the three years before disposal

Accounting periods shorter than 12 months are converted to the equivalent whole years.