RLK Solicitors Private Client Budget 2026: Founders’ Relief and Capital Gains Tax – A New Opportunity for Entrepreneurs? 

The Chancellor’s 2026 Budget included one of the most significant changes to the taxation of business disposals for many years. While much attention has focused on the reduction of the lifetime limit for Business Asset Disposal Relief (BADR), the Budget also introduced proposals for a new Founders’ Relief designed to reward entrepreneurs who build and grow successful UK businesses.  

If enacted in its current form, the new relief could allow qualifying founders to pay Capital Gains Tax (CGT) at just 10% on gains of up to £10 million, potentially generating tax savings worth hundreds of thousands of pounds. However, the relief is targeted at a relatively narrow group of founders and is subject to a number of stringent conditions.  

What Has Changed? 

Currently, many owner-managers rely upon Business Asset Disposal Relief when selling their businesses. BADR allows qualifying gains to be taxed at a preferential rate, but the 2026 Budget announced that the BADR lifetime limit will be reduced from £1 million to £500,000 for disposals taking place on or after 6 April 2027.  

At the same time, the Government announced a consultation on a new Founders’ Relief. The proposed relief would provide a 10% CGT rate on qualifying gains up to a lifetime limit of £10 million per individual for disposals occurring on or after 6 April 2027.  

The stated aim is to encourage entrepreneurs to establish, grow and retain innovative businesses within the United Kingdom, while rewarding long-term founders and significant early investors.  

Who Could Qualify? 

The proposed rules are significantly more restrictive than BADR. 

In broad terms, an individual would need to: 

• Have held at least 25% of the company’s ordinary share capital when the trade, or preparations for the trade, commenced. 

• Have held their shares for at least five years before disposal. 

• Have been UK resident for at least five continuous tax years before the disposal.  

Importantly, the founder need not necessarily retain a 25% holding until the point of sale. The key test applies when the trade commenced, meaning that later dilution may not automatically disqualify the founder.  

The relief is proposed to apply only to individuals. Trustees and many corporate structures are unlikely to qualify directly.  

The Company’s Conditions 

The company itself must also satisfy demanding qualifying requirements. 

The business would generally need to: 

• Be subject to UK Corporation Tax. 

• Have a substantial UK presence. 

• Be a trading company, or the holding company of a trading group. 

• Have turnover of at least £10 million. 

• Employ at least 15 qualifying full-time employees.  

In addition, the company would need to satisfy at least two growth or innovation tests. These may include significant increases in turnover, employee numbers or qualifying research and development expenditure.  

These requirements indicate that the relief is not intended for every owner-managed company. Instead, it is aimed primarily at businesses that have achieved meaningful scale, growth and innovation.  

Practical Example 

Consider a founder who incorporates a technology business in 2019. 

By 2027 the company: 

• Employs 30 staff. 

• Generates annual turnover of £15 million. 

• Meets the required growth conditions. 

• Is sold for a gain of £5 million. 

If the founder qualifies for the new relief, the gain could be taxed at 10%, resulting in a CGT liability of £500,000.  

Without the relief, assuming a 24% CGT rate applies, the tax liability could be £1.2 million. The tax saving would therefore be approximately £700,000.  

For a larger disposal producing gains approaching the £10 million lifetime limit, the benefit could be considerably greater. 

Potential Issues 

As with most tax reliefs, the detail matters. 

Many founders who initially assume they qualify may discover difficulties when reviewing historic records. Particular areas likely to require careful examination include: 

• Historic shareholdings and dilution events. 

• Incorporation documents. 

• Articles of association. 

• Evidence of when trading actually commenced. 

• UK residence status. 

• Corporate growth records. 

• Research and development claims.  

Businesses that have undergone multiple investment rounds may also need detailed advice to determine whether the original 25% ownership condition was satisfied.  

Planning Considerations 

For business owners contemplating an exit within the next few years, the Budget announcements may have a significant influence on transaction timing. 

We are advising founders who are likely to qualify for the new relief to consider delaying a disposal until after 6 April 2027. Conversely, business owners expecting to rely solely on BADR may wish to evaluate the effect of the proposed reduction in the BADR lifetime limit from £1 million to £500,000.  

It is also sensible for founders to begin assembling evidence now. Share registers, incorporation documents, historic accounts and growth metrics may all become critical in supporting a future claim. Every business is different, and the impact of these changes will depend on your particular circumstances. We at RLK would be pleased to review your position and advise on how the new rules may affect your business and future plans. 

Conclusion 

The proposed Founders’ Relief represents the most generous CGT incentive for entrepreneurs since the original incarnation of Entrepreneurs’ Relief. For qualifying individuals, a 10% tax rate on gains of up to £10 million could produce substantial savings and make a meaningful difference to net sale proceeds.  

However, the relief is deliberately targeted and comes with strict eligibility requirements. Many business owners who qualify for BADR may not qualify for the new regime. As always, early planning and specialist tax advice will be essential where a future business sale is being considered.  

Planning to sell your business in the next few years? 

The legal and tax implications of a business exit often extend well beyond the transaction itself. Our Commercial and Estate Planning teams work together to help business owners prepare for future sales, succession events and wealth preservation opportunities. Contact RLK to discuss how the proposed changes could affect your plans. 

RLK Note: At the time of writing, the proposed Founders’ Relief remains subject to Government consultation and the final legislation may differ from the current proposals.