Founders’ Relief 2027: The New 10% Capital Gains Tax Relief Explained

What is Founders' Relief?

Founders' Relief is a proposed Capital Gains Tax relief announced at Budget 2026. HMRC's policy paper describes a reduced 10% rate on disposals of shares up to a lifetime limit of £10m of eligible gains, for founders and early investors who held a large equity stake from the commencement of trading in a company that meets the relevant criteria.(HMRC) The stated aim is to support those who have made a significant long-term contribution to the UK's most high-growth and innovative companies.

When is it intended to start?

The relief is intended to apply to qualifying disposals on or after 6 April 2027.(HMRC) HM Treasury's technical consultation closes at 11:59pm on 30 November 2026; the government will use the responses to finalise the design, with legislation in Finance Bill 2026-27.(HM Treasury) Until legislation is enacted, every condition on this page should be treated as proposed.

Who could qualify?

As proposed, the individual would need to:(HMRC)

• have held 25% of the company's ordinary share capital at the point when the trading activity for which the company was formed, or the preparation for that trade, commenced;
• have held the shares or securities for at least 5 tax years before the disposal;
• have been UK resident under the Statutory Residence Test for at least 5 continuous tax years before the disposal.

For the disposal to qualify, the company would need to be within the scope of UK Corporation Tax; have a substantial UK presence for the 5 accounting periods before disposal; be a trading company, or the holding company of a trading group, without substantial non-trading or non-qualifying activities; and continue the new trade it was established for, with no major change in its nature.

Is my company large enough to qualify?

As proposed, the company would need turnover of at least £10m and at least 15 qualifying full-time equivalent employees in the accounting period ending in the year before disposal.(HMRC) That threshold, together with the growth tests below, means Founders' Relief is likely to be relevant to a narrower subset of growth companies. Many established UK SMEs, including profitable, well-run founder-owned businesses, will not qualify. HMRC estimates around 600 individuals a year would be eligible.(HMRC)

Growth and innovation tests

In addition to the scale test, the company would need to meet at least two of three proposed conditions.(HMRC)

Which activities or sectors may be excluded?

The policy paper says trading activities in certain sectors, the same as those excluded by the Enterprise Investment Scheme, will not qualify, including dealing in land, financial services and property development.(HMRC) The EIS exclusions are detailed and have their own definitions and thresholds, so whether a particular business is affected needs checking against the final legislation. Companies may be listed or unlisted.

How much tax could it save?

On a hypothetical £1m gain that fully qualifies, the proposed relief would give tax of £100,000 compared with £240,000 at the 24% main rate: an illustrative difference of £140,000. The £10m figure is a lifetime cap on qualifying gains, not on transaction proceeds; gains are broadly proceeds less allowable base cost, and only the qualifying part counts.

Does a founder have to sell the whole company?

The policy paper describes the relief as applying to qualifying disposals of shares, up to the lifetime limit; it does not describe a requirement to sell the whole company.(HMRC) How the final rules will apply to particular transactions is a matter for the legislation.

Partial disposals, retained equity, rollover and earn-outs: what the relief does not automatically tell you

The published proposal does not settle how every deal structure would be treated. Partial sales with retained equity, rollover into a buyer's shares, loan notes, deferred consideration and earn-outs each raise their own questions about when a disposal is made, which gains qualify and whether conditions are still met at the relevant time. The consultation also refers to anti-avoidance rules and to individuals needing access to company records to make a claim. These structures require specialist tax advice and should not be assumed to qualify. See retaining equity after an exit for the commercial trade-offs.

Founders' Relief versus BADR

Business Asset Disposal Relief is an existing relief at 18% for a broad population of owner-managers who hold at least 5% of a trading company and work in it, with the lifetime limit falling to £500,000 from 6 April 2027.(HMRC) Founders' Relief is a proposed 10% relief with a £10m limit, but with much stricter shareholding, holding-period, residence, scale and growth conditions.