Founders’ Relief: A new tax opportunity for entrepreneurs in the 2026 Budget

The Autumn Budget 2026 introduced a new tax incentive for entrepreneurs and early investors, Founders’ Relief.

This relief is designed to reward individuals who establish and grow successful, innovative UK businesses and it was met with excitement from the business community. From 6 April 2027, qualifying founders can benefit from a reduced Capital Gains Tax (CGT) rate of 10% on qualifying gains, subject to a lifetime limit of £10million. However, early indications appear that very few people will be eligible for this relief due to the stringent qualifying criteria.

Who qualifies?

To qualify, individuals will generally need to have held at least 25% of the company’s ordinary share capital when trading commenced, retained their shares for at least five years and been UK resident for five continuous tax years before disposal.

What are the company criteria?

The company must satisfy several conditions:

• Be within the scope of UK Corporation Tax and have a substantial UK presence for the five accounting periods before disposal.
• Be a qualifying trading company or the holding company of a qualifying trading group.
• Continue the trade it was established to undertake, without a major change in the nature of its business.
• Have turnover of at least £10 million in the accounting period before disposal.
• Employ at least 15 qualifying full time equivalent employees in that period.

In addition, the company must meet at least two of the following three growth and innovation tests:

1. Turnover growth: Average annual compound turnover growth of at least 25% over three consecutive accounting periods.
2. Employee growth: Average annual compound growth of at least 25% in qualifying full-time equivalent employees over three consecutive accounting periods.
3. Innovation: At least £1.5million of qualifying research and development expenditure, with the relevant R&D tax relief claimed.

What should founders do?

Founders considering an eventual business sale should review their eligibility early, particularly their shareholding, company growth and R&D records. The proposals remain subject to consultation, but early tax planning will be important in determining whether this new relief could provide a valuable tax saving.

As always, the team at Dafferns is here to support businesses through all stages of their lifecycle.