You’ve put years into building your business. When it’s time to sell, how much of that hard-earned value will you keep? Two proposed tax changes could give business owners very different answers.
Announced in the Budget on 28 October 2026, Founders’ Relief would offer a 10% Capital Gains Tax (CGT) rate on up to £10 million of lifetime gains. The catch is that the rules are tough. The Treasury expects only around 600 people a year to actually claim it. For most owner-managers, the change that will matter more is the cut to Business Asset Disposal Relief (BADR), which starts at the same time in April 2027.
The government is splitting the business tax landscape into two tiers: a tax break for founders and early investors in fast-growing scale-ups, and scaled back incentives for the everyday SME. Whether you're better or worse off when it comes time to sell your business will depend on which side of the line you fall on.
Key Dates
| 28 October 2026 | Budget announces Founders' Relief and the BADR change |
| 30 November 2026 | Founders' Relief technical consultation closes |
| 6 April 2027 | Founders' Relief starts; BADR lifetime limit falls to £500,000 |
* It's important to remember that Founders' Relief is not yet final. The consultation process is ongoing, meaning some conditions and qualifying criteria could change before April 2027.
What is Founders' Relief
Founders’ Relief is a new Capital Gains Tax relief for founders and early investors in high-growth, innovative UK companies. If you qualify, gains on the sale of your business could be taxed at just 10%, compared with the standard higher CGT rate of 24%.
Key Features
| Rate | 10% |
| Limit | £10 million of lifetime gains per individual. Because the cap is per person, several founders of the same company can each claim |
| Start Date | Disposals on or after 6 April 2027 |
| Claiming | Through your Self Assessment tax return |
| Link to BADR | The £10 million limit is reduced by any BADR or Investors’ Relief claims made from 6 April 2027 |
Who Could Qualify?
To claim, three sets of tests will need to be met: those for the individual, those for the company, and those for growth and innovation.
The Founder Tests
To pass the individual tests, you must:
- have held at least 25% of the company’s ordinary share capital, with matching voting rights and rights to profits and winding-up proceeds, at the point the trade (or preparation for the trade) began;
- have held your shares or securities for at least five 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 Tests
The company must:
- be within the scope of UK Corporation Tax, with a substantial UK presence for the five accounting periods before the sale;
- be a trading company (or the holding company of a trading group) without substantial non-trading activities;
- not be in an excluded trade, using the same list as the Enterprise Investment Scheme, which includes dealing in land, financial services and property development;
- still be carrying on the trade it was set up for, with no major change in its nature; and
- in the accounting period before the sale, have turnover of at least £10 million and at least 15 qualifying full-time employees (35+ hours a week, paid at least the National Minimum Wage, and excluding directors, contractors and agency staff).
The Growth and Innovations Tests
The company must also meet at least two of these three:
| Turnover | 25% average annual compound growth across three consecutive accounting periods in the ten years before sale, starting from at least £10m |
| Headcount | 25% average annual compound growth in qualifying FTEs over a similar window, starting from at least 15 |
| Innovation | At least £1.5m of qualifying R&D expenditure, with R&D tax relief claimed for periods ending in the three years before sale |
Founders’ Relief isn’t perfect, but for founders who qualify, the potential savings could be substantial. Bringing in outside investors and reducing your stake later would not necessarily rule you out. There’s also no requirement to reinvest the proceeds.
Who's Unlikely to Qualify?
What the BADR Cut Could Mean for You
Founders’ Relief has grabbed the headlines, but plenty of business owners won’t qualify for it. Think of a family firm that has grown steadily for 25 years. It can be profitable, successful and loved by its customers without hitting 25% annual growth or pouring money into R&D. For owners like these, the change that matters most is the halving of Business Asset Disposal Relief.
BADR works differently. It doesn’t target high-growth businesses. It asks for a much smaller shareholding and a shorter qualifying period, so it’s still the relief that matters most to owners of ordinary trading companies. The Chancellor said the lower limit would mean “no change for three in four claimants”. But for the remaining quarter, the people with larger gains, the impact could be significant.
Founders' Relief vs BADR
|
BADR
(Before April 2027)
|
BADR
(From April 2027)
|
Founders' Relief
(From April 2027)
|
|
| Tax Rate | 18% | 18% | 10% |
| Lifetime Limit | £1,000,000 | £500,000 | £10,000,000 |
| Minimum Shareholding |
5% |
5% | 25% (at start of trade) |
| Holding Period | 2 years | 2 years | 5 years |
| Company Conditions |
Standard trading company status |
Standard trading company status |
Turnover & headcount criteria |
What's Changing with BADR?
Business Asset Disposal Relief, formerly Entrepreneurs’ Relief, has long been a cornerstone of exit planning for many owner-managers. Over the past few years it has been steadily scaled back. The rate was 10% until 2025, rose to 14% that year, and went up agaiin to 18% in April 2026, which it stands today.
From 6 April 2027, the lifetime limit drops from £1 million to £500,000. Any gains above that are taxed at the main 24% higher rate, so the most an individual can save through BADR reduces from £60,000 to £30,000.
What Should Business Owners Be Doing Now?
1. Assess Which Relief Is Realistically Available. Many business owners will quickly discover they are either clearly inside or outside the Founders' Relief rules. Understanding this position early can help shape future exit planning.
2. Gather Supporting Evidence. Original share issue records and articles, board minutes showing when trading (or preparation) started, annual accounts for turnover, payroll data for full-time equivalents, residence records and any R&D claim papers.
3. Compare Different Exit Scenarios. Compare completing before 6 April 2027 using BADR at the current £1 million limit with waiting for a possible 10% rate on up to £10 million. Tax should never drive a sale on its own, but understanding the numbers is an important part of the decision.
4. Review Previous Relief Claims. BADR and Investors' Relief claims made after 6 April 2027 will reduce the available Founders' Relief lifetime allowance, so take advice before claiming either on smaller disposals.
5. Take Advice Early. It is far easier to explore your options before terms are agreed than to revisit them afterwards.
Founders' Relief may be a prize for a small group of founders, but for many business owners the more significant change will be the reduction in BADR. Whichever side of the line you fall on, the real opportunity is in planning ahead. Thinking about timing, share ownership and which exit route suits you best should be done well before a buyer shows up.
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