New Founders' Relief: 10% Capital Gains Tax On Up To £10 Million
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New Founders' Relief: 10% Capital Gains Tax on Up to £10 Million (UK Budget 2026)
From 6 April 2027, Founders' Relief will tax qualifying share sales at 10% on up to £10 million of lifetime gains, against 24% at the higher rate and 18% under Business Asset Disposal Relief. It is narrow: you need 25% of the company when it began trading, five years' ownership, and a company turning over at least £10 million.
For the 2026/27 tax year nothing changes. A sale that is legally made on or before 5 April 2027 can only use Business Asset Disposal Relief (BADR), at 18% on up to £1 million of lifetime gains. The real decision for most founders reading this is timing, and the answer depends almost entirely on whether your company passes tests that look modest on paper and are hard to meet in practice. HMRC's own policy paper expects only about 600 individuals a year to benefit, across about 400 businesses.
What is Founders' Relief and when does it start?
Founders' Relief is a proposed Capital Gains Tax (CGT) relief that taxes gains on qualifying disposals of shares or securities at 10%, up to a lifetime limit of £10 million of gains per individual, for disposals made on or after 6 April 2027.
It was announced in the Budget 2026 report on 28 October 2026 and is set out in HMRC's policy paper on the introduction of a founders' relief. The detailed design is still open: HM Treasury's Founders' Relief technical consultation runs until 11:59pm on 30 November 2026, and the legislation will follow as amendments to Finance Bill 2026-27. The conditions below are therefore the government's published proposals, and you should plan on the basis that the detail can still move.
The Budget paired the new relief with a cut to BADR. For disposals from 6 April 2027 the BADR lifetime limit falls from £1 million to £500,000, still at the 18% rate confirmed in GOV.UK's Capital Gains Tax rates and allowances. The main CGT rates for 2026/27 are 18% and 24%, with an annual exempt amount of £3,000.
Do you qualify as a founder?
Under the proposals, you qualify as an individual only if you held at least 25% of the company's ordinary share capital when it started trading (or started preparing to trade), you have held shares for at least five years before the sale, and you have been UK resident under the Statutory Residence Test for at least five continuous tax years before the sale.
The 25% must carry matching voting rights, rights to profits and rights on a winding up, so a holding of non-voting or growth shares does not count towards it. The test can be met through a holding company at the top of a trading group, but only individuals can claim, so shares held by a family trust are outside the relief.
The part most commentary has missed is what the founder test does not require. It looks at your stake when the company began trading, not at the time of sale, and the consultation says relief covers all the shares you dispose of, not just the original ones. The published conditions also contain no requirement to be an officer or employee at the point of sale.
That is the reverse of BADR. To claim Business Asset Disposal Relief on shares you generally need at least 5% of the company and must be an officer or employee for the two years before the sale. A founder diluted to 4% by funding rounds, or one who stepped back from the board, can lose BADR entirely and still meet the Founders' Relief founder test.
The flip side is that a co-founder who held 20% at the start never qualifies, however long they stay or however much the business grows. An early investor is in the same position: the policy paper refers to "early investors", but the conditions as drafted only help one who held 25% when trading began.
Founders' Relief 2027: Capital Gains Tax Comparison Dashboard
This interactive dashboard provides a clear financial comparison between the incoming Founders' Relief and the revised Business Asset Disposal Relief (BADR) taking effect from 6 April 2027. It illustrates exactly how the proposed 10% rate on up to £10 million of lifetime gains could impact your Capital Gains Tax liabilities compared to an earlier disposal in the 2026/27 tax year. Simply input your projected gain and initial equity percentage to instantly model your potential tax bill across different sale timelines. Use the visual breakdown to evaluate the precise decision boundary for your exit strategy and determine whether delaying your unconditional exchange of contracts will yield a genuine tax saving.
Does your company pass the tests?
Your company must meet two sets of conditions. Most companies that fail will fail here, not on the founder test.
The baseline conditions are that the company is within UK Corporation Tax, has a substantial UK presence for the five accounting periods before the sale, is a trading company (or the holding company of a trading group) without substantial non-trading activity, and still carries on the trade it was set up for with no major change. Listed and unlisted companies can both qualify, but activities excluded under the Enterprise Investment Scheme, such as dealing in land, financial services and property development, do not. In the accounting period before the sale it must also have turnover of at least £10 million and at least 15 qualifying full-time equivalent employees.
The consultation defines a qualifying employee as someone working at least 35 hours a week and paid at least the National Minimum Wage. Directors, contract workers and agency workers do not count. A business with 22 people on the payroll, of whom 5 are directors and 4 are contractors, has 13 qualifying employees and fails the test.
On top of that, the company must pass two of three growth and innovation tests:
Test | What it requires |
Turnover growth | 25% average annual compound growth over 3 consecutive accounting periods within the 10 years before the sale, from turnover of at least £10 million in the period before the first of the three |
Headcount growth | 25% average annual compound growth in qualifying FTE employees over 3 consecutive periods within the 10 years, from at least 15 FTE in the period before the first of the three |
Innovation | Qualifying research and development (R&D) spending of at least £1.5 million, with R&D tax relief claimed for a period ending within the 3 years before the sale |
The compound growth tests are steeper than they look. Three years of 25% compound growth multiplies the starting figure by 1.953, so the turnover test needs the company to go from at least £10 million to at least £19.53 million in that window. The headcount test needs at least 15 qualifying full-time equivalent employees to become at least 29.3.
Because the base must already be £10 million, fast growth below that size does not count. A company that grew from £2 million to £12 million in three years has excellent growth but fails the turnover test, and needs to pass both the headcount test and the innovation test instead.
The innovation test ties your personal relief to the company's R&D claim. The consultation states that if HMRC later amends an R&D claim you relied on and the condition is no longer met, you lose the relief and pay the extra tax with interest. If R&D is one of your two tests, the quality of the company's R&D claims becomes a risk to your own tax bill on the sale. The government also notes that companies which innovate without claiming R&D relief can still qualify by passing the turnover and headcount tests.
Should you sell before or after 6 April 2027?
If you qualify for Founders' Relief, a sale made on or after 6 April 2027 can save up to £1,340,000 against a 2026/27 sale using BADR. If you do not qualify, a sale on or after that date costs up to £30,000 more, because the BADR limit halves.
Those two figures are the decision boundary. They come from comparing BADR's 18% on £1 million plus 24% on the rest with 10% on £10 million, and from the £500,000 of gains that drop out of BADR and become taxable at 24% instead of 18%.
Example: a founder sells for a £12 million gain. A founder held 40% when the company began trading in 2015, has been diluted to 18%, and is still a director. The company's turnover grew from £11 million to £24 million over its last three accounting periods (about 29.7% a year), it has 60 qualifying employees, and it claimed R&D relief on £2 million of spending in its latest period. The founder has never claimed BADR, and their salary already uses their basic rate band.
Outcome | Calculation | CGT payable |
Exchange in March 2027, BADR | £1,000,000 at 18% = £180,000; £10,997,000 at 24% = £2,639,280 | £2,819,280 |
Exchange in July 2027, no Founders' Relief, BADR | £500,000 at 18% = £90,000; £11,497,000 at 24% = £2,759,280 | £2,849,280 |
Exchange in July 2027, Founders' Relief | £10,000,000 at 10% = £1,000,000; £1,997,000 at 24% = £479,280 | £1,479,280 |
Each line deducts the £3,000 annual exempt amount from the gain taxed at 24%. If this founder qualifies, waiting until July 2027 cuts the bill by £1,340,000. If the company's turnover in the period before the sale were £9.8 million instead, the founder would not qualify, and the same wait would cost £30,000.
The video with this article runs through these three outcomes side by side. Its conclusion is that a later completion date is only worth negotiating for once you are confident the company passes every test.
The date that matters is not completion. Under section 28 of the Taxation of Chargeable Gains Act 1992, the disposal happens when an unconditional contract is made, or when the last condition of a conditional contract is satisfied. If you exchange unconditionally on 30 March 2027 and complete on 15 May 2027, the sale falls in 2026/27 and Founders' Relief cannot apply. The share purchase agreement needs to be drafted with that in mind.
Deferred and contingent consideration needs separate thought. Where part of the price is an earn-out of unknown amount, the right to the earn-out is usually treated as a separate asset, and the government's papers do not say how Founders' Relief will apply to it.
How do Founders' Relief, BADR and Investors' Relief fit together?
Any BADR or Investors' Relief you claim from 6 April 2027 reduces your £10 million Founders' Relief limit, according to HMRC's policy paper.
Two practical points follow. There is no reason to claim BADR at 18% on a gain that can take Founders' Relief at 10%, because the BADR claim would use up the same £10 million. And if you expect to claim Founders' Relief later on your main company, a BADR claim on a smaller disposal after 6 April 2027 eats into that headroom.
One point is not settled. Neither the policy paper nor the consultation says whether BADR or Investors' Relief claimed before 6 April 2027 also counts against the £10 million. If you have used your £1 million of BADR on an earlier sale, the answer could be worth up to £140,000 to you (the 14-point gap between 24% and 10% on £1 million), so it is a point worth raising in a consultation response.
Does Founders' Relief apply the same way in Scotland and Wales?
Yes. Capital Gains Tax is not devolved, so the 10% rate, the £10 million limit and every condition apply the same across England, Scotland, Wales and Northern Ireland. Whether your other gains are taxed at 18% or 24% depends on the UK Income Tax bands, even if you pay Scottish Income Tax on your salary.
How will you claim it, and what records will you need?
You will claim Founders' Relief on your Self Assessment return for the tax year of the sale, with a supplementary form HMRC is designing for it. HMRC will treat a claim that lacks the prescribed information as unsatisfactory, and that information includes the accounting periods you rely on for each test.
That creates a records problem many founders will not see coming. By the time of a sale you may be a minority shareholder with no right to the company's payroll analysis, its turnover by period, or its R&D claim papers. The consultation proposes a statutory right for you to request this from the company within a fixed period. The safer course is to secure the evidence, and a warranty or covenant to provide it, in the sale documents.
This is the point where working it out alone stops being sensible. The tests depend on accounting periods, headcount definitions and R&D claims that you have to evidence to HMRC, and on contract timing that has to be agreed with the buyer before signing. Pro Tax Accountant's exit planning service would test your shareholding and the company's figures against each condition, model the tax on your sale dates, review the timing and consideration terms in the share purchase agreement, and prepare the CGT claim on your Self Assessment return.
What to do before 6 April 2027
By 30 November 2026: if a condition looks wrong for your company, for example the treatment of earlier BADR claims, send a response to the consultation at EnterpriseTax@hmtreasury.gov.uk.
Before heads of terms are signed: confirm your shareholding when the company started trading, from the register of members and the original share issues. This is the test you cannot fix later.
Before heads of terms are signed: get turnover and qualifying headcount figures for each of the last ten accounting periods, and the R&D claims for periods ending in the last three years.
During negotiations: decide the exchange date and contract conditions on the basis that the disposal date is the date of unconditional exchange, not completion.
At exchange: write into the sale agreement the company's duty to provide the information you will need for the claim.
By 31 January after the tax year of sale: file your Self Assessment return with the Founders' Relief claim and pay the CGT. For a sale in 2027/28, that is 31 January 2029.
FAQs
Can my spouse and I each claim the £10 million Founders' Relief limit?
The limit is £10 million per individual, and the policy paper confirms that more than one person can claim on the same company. Each of you must meet the conditions on your own, including the 25% holding when the company began trading. The published conditions do not say whether a spouse's or civil partner's shares can be combined to reach 25%.
Does Founders' Relief apply to a company listed on AIM or the main market?
Yes. HMRC's policy paper says both listed and unlisted companies can qualify. That differs from Investors' Relief, which only applies to unlisted shares, and from the Enterprise Investment Scheme.
Will the Founders' Relief rules change before April 2027?
They may. The technical consultation closes on 30 November 2026, and the government will then finalise the design and introduce it through amendments to Finance Bill 2026-27. The 10% rate, the £10 million limit and the 6 April 2027 start date were announced in the Budget, and the detailed conditions are what the consultation covers.
Can I sell part of my shares now and the rest after April 2027?
Yes, the two sales are separate disposals. A partial sale before 6 April 2027 can use BADR at 18% on up to £1 million, and a later sale can use Founders' Relief if you still meet the conditions. Whether the earlier BADR claim reduces your £10 million limit has not been settled, so this works best where it does not depend on that answer.
Does the company have to stay independent after I sell?
The tests look at the company in the periods before your sale, so what the buyer does with it afterwards does not affect your relief. The exception is the R&D test: if HMRC later amends an R&D claim made before the sale and you relied on it, you lose relief and pay interest.
About the Author:
Adil Akhtar, ACMA, CGMA, FCMA (membership ID is 990250923) serves as CEO and Chief Accountant at Pro Tax Accountant, bringing over 18 years of expertise in tackling intricate tax issues. As a respected tax blog writer, Adil has spent more than eighteen years delivering clear, practical advice to UK taxpayers. He also leads Advantax Accountants (registered with Companies House), combining technical expertise with a passion for simplifying complex financial concepts, establishing himself as a trusted voice in tax education.
Email: adilacma@icloud.com
Disclaimer: This article sets out the general position under UK tax law for the 2026/27 tax year. The information has been checked against HMRC guidance and other official sources at the date shown above, and is reviewed when the rules change. Tax legislation is complex and outcomes depend on your individual circumstances, so this article is provided for general information and does not constitute advice on which you should act. Any figures or worked examples are illustrative. Before making any decision, obtain advice specific to your situation from a qualified professional. Pro Tax Accountant accepts no liability for loss arising from reliance on this article alone.
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