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Founders’ Relief was the headline business tax announcement in the Budget on 28 October 2026: a 10% rate of Capital Gains Tax on up to £10 million of lifetime gains, for disposals on or after 6 April 2027. The Budget itself only said it was for “qualifying founders of high-growth, innovative companies”, and the detail is in a technical consultation published alongside it by HM Treasury and HMRC (CGT Founders’ Relief: technical consultation, October 2026).
It’s important to say that this is only a consultation. The government is inviting comment from tax advisers, businesses and anyone else with a view before it finalises the legislation, and the conditions could well change between now and then. On the proposals as they stand, though, most owner-managed companies wouldn’t qualify, because the company has to be turning over at least £10 million and employing at least 15 full-time staff in the year before the sale, and has to have grown quickly at some point in the ten years before that.
The size threshold
The company conditions in paragraph 2.7 of the consultation include turnover of at least £10 million in the accounting period before the disposal, and at least 15 qualifying full-time employees in that same period. A qualifying employee works at least 35 hours a week and is paid at least the National Minimum Wage; directors, contractors and agency workers don’t count. As drafted, both conditions have to be met, whatever else the company can show.
That’s a bigger company than most owner-managed businesses, as the deals I act on are usually sales for between £250,000 and £10 million and a company turning over £10 million with fifteen full-time staff, not counting the directors, is likely to be at the top of that range or above it.
The growth tests on top
Meeting the size threshold isn’t enough on its own, as the company also has to pass two of three tests set out in chapter 3. The turnover test needs average compound growth of 25% a year across three consecutive accounting periods in the ten years before the sale, starting from turnover of at least £10 million. The headcount test needs the same 25% annual growth in full-time employees, starting from at least 15. The innovation test needs at least £1.5 million of qualifying research and development spending, with R&D tax relief claimed for it, in periods ending within the three years before the sale.
In practice that means taking turnover from £10 million to roughly £19.5 million over three years, or the workforce from 15 to about 29, or spending heavily on R&D and claiming the relief for it.
The founder has to qualify personally as well. Under the proposals they must have held 25% of the ordinary shares when the trade (or the preparation for it) began, have held their shares for at least five years, and have been UK resident for the five tax years before the sale. Someone who bought into an existing business, including through a management buy-out, wouldn’t meet the first of those.
What this means for most sellers
For most owners, the relief that matters is still Business Asset Disposal Relief, which went up to 18% in April 2026 following last year’s Budget, and this Budget cut its lifetime limit from £1 million to £500,000 for disposals from 6 April 2027. The consultation also proposes (paragraph 2.4) that the £10 million Founders’ Relief limit is reduced by anything claimed under BADR or Investors’ Relief, so the limits would be shared rather than added together.
The consultation closes on 30 November 2026, which is a shorter period than usual, and the government then plans to add the legislation to Finance Bill 2026-27. That’s when the tax specialists will have the actual wording to work through, and until then anyone telling you with confidence whether you qualify is going further than the documents allow. If your company is close to the proposed thresholds, it’s worth asking your accountant to look at your figures now as part of your exit planning, as the tests look back over up to ten years of accounts. If you do qualify and are selling, the share purchase agreement should give you access to the company’s records after completion; your claim depends on information the buyer will then hold, and the consultation says that if HMRC later finds a condition wasn’t met (for example, by disallowing the company’s R&D claim) you lose the relief and pay the extra tax with interest.
I should say that I’m a solicitor rather than a tax adviser, so whether you qualify, and what it’s worth to you, is a question for your accountant. I act for owners selling their businesses and handle the sale agreement that the tax planning has to fit into. Get in touch if you need some help.
Written by Steven Mather, a business solicitor acting on company sales and purchases. This is general information about the law, not legal advice on your situation. Law correct as at .
