Budget 2026: New CGT Founders’ Relief and changes to Business Asset Disposal Relief 

• 28 October 2026
• News
• Tax

The Autumn Budget 2026 announced a new CGT Founders’ Relief, as well as a reduction in the lifetime limit for capital gains eligible for Business Asset Disposal Relief. 

New CGT Founders’ Relief  

The Government announced a new Founders’ Relief in the form of a reduced 10% rate of CGT where individuals meet certain conditions and dispose of shares in trading companies which they have helped to set up/found. There is a lifetime limit of £10 million per individual.  

The Government’s stated aim is to encourage UK resident individuals to set up UK resident trading companies which grow over at least a five-year period before the shares are disposed of and Founders’ Relief is claimed.  

A consultation document has been published which sets out the proposed conditions for relief to be available. The consultation will close on 30 November 2026 with the aim of legislation being introduced so that the Founders’ Relief can be available for qualifying disposals made on or after April 2027.  

It is welcome that the government is seeking to encourage founders to set up trading businesses in the UK and to reward them with a 10% CGT rate if the company, broadly, grows over a five-year period before the shares are disposed of. However, as we describe below, the individual, company and growth and innovation conditions that need to be met before relief is available are complicated and founders may well be concerned that the 10% rate may not actually apply to them. 

What are the conditions that an individual has to meet? 

First, the individual needs to have held 25% of the company’s ordinary share capital (including rights to vote and rights to distributable profits and assets on a winding up) from the time the company’s trading activity commences or preparation for the trade has commenced.  

Secondly, the shares then need to be held for at least five years before they are disposed of. 

Thirdly, the individual must have been UK resident under the Statutory Residence Test for at least five consecutive tax years before the disposal. 

Additional shares acquired after the initial 25% can also qualify for the relief. 

What are the company conditions that need to be met?  

First, the company must be UK resident or carrying on a business in the UK through a permanent establishment. 

Secondly, the company must be a trading company or the holding company of a trading group. Excluded trading activities will be the same as under the Enterprise Investment Scheme (for example, dealing in land, financial services and property development). 

Thirdly, the company must carry on the same trade as when the founder’s shares were issued with no major changes in the nature of the trade. This condition may cause difficulties as start-up companies often begin with an idea for a business and then shift focus if the initial idea does not work. 

Fourthly, the company must have generated a turnover of at least £10 million in the accounting period prior to disposal. 

Fifthly, the company must have employed at least 15 qualifying full-time employees in the accounting period prior to the disposal. 

What are the growth and innovation conditions? 

In addition to meeting the individual and company conditions, a further set of growth and innovation conditions will need to be met.  

The turnover and head count conditions described below will measure growth by comparing each accounting period with the one before and will set a minimum level that must be met in the period before the first of three years of consecutive growth.  

The company will need to meet two of three tests as follows: 

1. Turnover test  
   Annual average compound growth in turnover of 25% across three consecutive accounting periods within the ten years before disposal, with turnover of at least £10 million in the accounting period before the first of these three periods.  
2. Headcount test 
   Annual average compound growth of at least 25% in qualifying full-time equivalent employees across three consecutive accounting periods, within the 10 years before disposal, with at least 15 full- time employees in the accounting period before the first of these three periods.  
3. Innovation test 
   The company must have (1) incurred qualifying expenditure of £1.5 million or more on research and development (R&D) for which it met all the conditions to make an R&D tax relief claim and (2) have claimed R&D tax reliefs for that expenditure for an accounting period or periods ending within the three years of the disposal. 

If an individual is relying on meeting the innovation test, the Founder could find that the Founders’ Relief which is claimed is later withdrawn if HMRC subsequently successfully challenge the R&D claim. If this happens, it will lead to the individual becoming liable for additional CGT at higher rates and interest on the unpaid tax. Many R&D claims are challenged by HMRC and the legislation in this area is complicated, so this is likely to be a concern if the innovation test has to be relied upon. 

Business Asset Disposal Relief 

The Government has also announced in the Budget that the lifetime limit for capital gains eligible for Business Asset Disposal Relief (BADR) will be reduced from £1 million to £500,000 from April 2027.  This continues the approach of reducing the value of BADR.  The rate of relief for BADR has gradually moved from 10% to 18% 

As is the case with the Founders’ Relief, BADR applies to the disposal of shares in trading companies but only a 10% shareholding in the relevant company is required to claim BADR and the minimum holding period is two years, rather than five years for Founders’ Relief. 

To the extent that BADR (and/or Investors’ Relief) are claimed this will reduce the availability of Founders’ Relief.   

All the indications are that the government now wants to focus on encouraging start- up businesses and incentivise their founders and the companies themselves to stay in the UK for at least 5 years,  with claims being made for Founders’ Relief rather than BADR. 

If you would like to be involved in our response to the Government’s CGT Founders’ Relief: technical consultation, please contact a member of our team.