Measure
The Chancellor has announced Founders’ Relief, a new Capital Gains Tax (‘CGT’) relief for founders of, and significant early investors in, high-growth, innovative UK companies.
Founders’ Relief will apply a 10% CGT rate to qualifying disposals of shares, subject to a lifetime limit of £10 million of gains per individual.
The government has published a consultation on the individual, company, growth and innovation conditions which are to apply, alongside administration and compliance requirements, before finalising the design. The following conditions are set out in the consultation document:
Proposed individual conditions: At the start of the company’s original trade, the individual must have held at least 25% of its ordinary shares, voting rights and rights to distributable profits and assets on a winding up, directly or through a trading group holding company. Shares must be held for five years, with the individual UK resident for the five tax years before disposal. Relief would be available only to individuals.
Proposed company conditions: The company must be within the scope of UK Corporation Tax, have a substantial UK presence for five accounting periods, and be a trading company or holding company of a trading group. EIS-style excluded activities rules would apply, which mean that relief is unavailable to companies undertaking certain activities, such as property development, dealing in land or financial services. The original trade must continue without major change. In the period before disposal, turnover must be at least £10m with at least 15 qualifying full-time employees.
Proposed growth and innovation conditions: Companies must meet two of three tests: (1) 25% annual compound turnover growth over three consecutive periods, starting from at least £10m; (2) 25% annual compound employee growth over three periods, starting from at least 15 full-time employees; or (3) at least £1.5m of qualifying Research and Development (R&D) expenditure within the three years before disposal.
The consultation also proposes that the £10 million lifetime limit will be reduced by amounts claimed under the limits for Business Asset Disposal Relief (‘BADR’) and Investors’ Relief from 6 April 2027. Relief would apply to qualifying disposals of shares or securities including those acquired on later acquisitions – i.e. relief will not be restricted to the founder’s original shareholding. The detailed conditions summarised in this note are proposals subject to consultation and government enactment, rather than final legislation.
The government has said this change will cost £300 million a year by 2031/32.
Founders of and significant early investors in high-growth, innovative UK companies who make qualifying share disposals. Eligibility will depend on the final individual, company, growth and innovation conditions following the technical consultation.
The relief will apply to qualifying disposals made on or after 6 April 2027. The technical consultation closes on 30 November 2026, with legislation to be introduced in Finance Bill 2026/27.
The new relief recognises founders and significant early investors who have built successful, high-growth and innovative UK companies. Its stated aim is to encourage businesses to start, scale and stay in the UK and to encourage successful founders to invest in the next generation of businesses.
The benefit for any individual business owner will depend heavily on the final eligibility conditions. The technical consultation will be important in determining which founders, significant early investors and companies can qualify, and how the growth and innovation requirements will operate in practice.
The consultation highlights practical issues in evidencing eligibility, including access to historical company records beyond existing statutory retention periods. Claims would be made through the individual’s Self Assessment return, identifying the periods relied upon for each condition; a mandatory standard form is being considered. The government favours a statutory right for individuals to request relevant information and supporting documents from companies. If a subsequent HMRC challenge to a company’s R&D claim means a qualifying condition was not met, the individual could lose Founders’ Relief and owe additional tax and interest. Targeted anti-avoidance rules are also being considered.
Those who qualify for Founders’ Relief may also benefit from BADR which is being restricted from 6 April 2027 with the lifetime limit being reduced from £1 million to £500,000. Please see our separate note on Restriction of BADR for further details.