Founders’ Relief: who qualifies, and what to do before April 2027

What's changed?

The first question everyone asked when the Chancellor announced Founders’ Relief was “Do I qualify?”. As currently proposed, most founders will not qualify. The relief is aimed at “the founders of our most successful firms”. For disposals from 6 April 2027, it offers a 10% rate of capital gains tax on up to £10m of lifetime gains. The Government’s own estimates are that it will cost the Exchequer c£300m per annum by 2031-32, across 600 founders per year.

From the same date, the lifetime limit for BADR halves from £1m to £500,000. The BADR rate stays at 18%, and the main rates of capital gains tax are unchanged. This reduces the maximum benefit from £60,000 to £30,000 per individual.

The detail is in a technical consultation published alongside the Budget, open until 30 November 2026. Legislation will follow in the Finance Bill, so the rules could still change. 

Who qualifies for Founders’ Relief? 

There are three sets of conditions. Please note that these are based on the consultation and changes may be made by the time the legislation is introduced. 

You. You must have held at least 25% of the company’s ordinary shares, (with matching voting and economic rights), when it started trading or preparing to trade. You need to have owned your shares for at least five years before the sale and been UK resident for at least five continuous tax years. Unusually, the proposed rules don’t require you to work in the business. The consultation refers to “significant early investors” as well as founders. On the rules as proposed, an early investor with a 25% stake could qualify. Later dilution doesn’t matter. The relief covers all your shares, not just the original holding. 

Your company. It must be a trading company, or the holding company of a trading group. For its last five accounting periods it must also have had a substantial UK presence, no substantial non-trading activities and no prescribed excluded activities. It must still carry on the trade it was set up for, with no major change. In the year before the sale, it needs at least £10m of turnover and at least 15 qualifying full-time employees. The consultation defines these as staff working at least 35 hours a week, (excluding directors, contractors and agency workers). 

• Your growth. This is the condition that will decide most claims. The company must pass two of three tests:
• Turnover: average growth, from a base of £10m, of 25% a year over three consecutive years within the ten years before disposal, with at least £10m turnover in the year before the sale.
• Headcount: the same growth rate, from a base of 15, in full-time equivalent employees, with at least 15 full-time employees (not directors, contract or agency workers) with pay of at least the National Minimum Wage in the year before the sale.
• Innovation: at least £1.5m of qualifying research and development (R&D) spending, with relief claimed for periods ending in the three years before the sale. 

In theory, a company can qualify on turnover and headcount alone, so this isn’t only a relief for tech businesses. 

Unsure what it means for you? Speak to a specialist

What’s it worth?  

For founders who qualify, the saving is substantial. Take a founder who pays higher rate tax and sells for a £10m gain, the maximum the relief covers: 

A relief for the few, a potential headache for the many? 

We support the ambition. But as proposed, Founders’ Relief risks adding unwelcome complexity and leaving many founders out for several reasons. 

1. It adds complexity. This adds a third capital gains relief for business owners, alongside BADR and Investors’ Relief. Each has its own conditions and limits that interact. In our pre-Budget survey, nearly half of mid-market businesses (48%) and almost a third of sole traders and business owners (31%) asked for a simpler tax system. This moves in the opposite direction.
2. It also leaves most founders out. Most founders will never meet the tests. Growth only counts once turnover reaches £10m, and it must fall within the ten years before a sale. That puts a clock on founders whose growth came early or was interrupted by COVID-19. 
3. It piles additional pressure on finance teams, auditors and R&D claims by tying a tax saving of up to £1.4m to hitting turnover, headcount and R&D numbers in particular years. 

The consultation: what’s still open 

The government has set out a detailed design but is asking for views on seven questions, and the window is short. Responses are due by 30 November 2026, and HM Treasury is encouraging people to respond as early as possible. The shorter period reflects evidence already gathered through the earlier call for evidence on tax support for entrepreneurs. HM Treasury and HMRC will also hold stakeholder meetings before the deadline. We’ll be responding, and we’d like to hear from founders and finance teams about how the proposals would affect them. 

The questions cover: 

• whether the individual conditions successfully identify founders, including where shares are held through a holding company or after a reorganisation
• whether the company conditions and the growth and innovation tests work in practice
• whether there’s a better way to identify innovative companies than R&D tax relief claims
• how founders get the company information they need. The government prefers a statutory right to request it within a set period, rather than a certificate from the company or HMRC.
• what happens if HMRC later overturns a condition a founder relied on, and how much HMRC can tell them about the company’s tax affairs
• avoidance risks. A targeted anti-avoidance rule is planned to stop artificial restructuring designed to bring companies within the relief. 

Where we'd like to see the design change

• Growth before £10m turnover should count, perhaps through a lower starting threshold, alongside a broader softening of the conditions. The relief should reward building a business, not one stage of its growth.  
• Part-time staff should count, on a full-time equivalent basis. Excluding part-time staff would penalise businesses that offer flexible work. Women and people with caring responsibilities are more likely to take up such roles. The consultation also uses both “full-time” and “full-time equivalent”, so the rules need clarifying either way. 
• The residence test should allow for time spent abroad, whether that’s two years building an overseas market or an entrepreneur who left the UK and now wants to come home. If the aim is to keep successful founders here, the rules should welcome them back. The existing temporary non-residence rules already stop people leaving simply to avoid tax. 
• The same-trade test should allow for normal changes of direction and for acquisitions, rather than penalising them. 
• Other business structures could be included, such as limited liability partnerships (albeit the innovation test would need to factor in that LLPs cannot claim R&D tax relief). 

What to do now

Most deals aren’t paid entirely in cash on completion. Earn-outs, deferred consideration and loan notes are common. Each can change when the gain is taxed and which relief applies. That makes timing and structure central to the tax outcome. 

1. Model the timing. If a sale is on the horizon, work out your tax both ways: selling before 6 April 2027 and after. For tax purposes, the date that matters is normally when the contract becomes unconditional, not completion.
2. Check how the price will be paid. A gain on an earn-out, or one rolled into loan notes and taxed when they’re redeemed, may not qualify for Founders’ Relief at all. The consultation doesn’t yet deal with these structures, so build this into deal terms early.
3. Test your figures. Check your company’s turnover and headcount against the growth tests, and start gathering records for the past ten years.
4. Stress test your R&D claims. If you might rely on the innovation test, review the last three years’ claims as if HMRC had opened an enquiry.  
5. Have your say. If the design doesn’t work for your business, respond to EnterpriseTax@hmtreasury.gov.uk by 30 November 2026, or talk to us about what to include in our consultation responses. 

Not sure where to start?

Reach out to Hannah Magee, Martin Verrall, Charlotte Senior or simply click on the link below to request to speak to a specialist.

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