Founders' Relief sets 10% CGT rate on £10m lifetime gains
Chancellor John Healey's 2026 Budget introduced Founders' Relief, a new 10% Capital Gains Tax rate on up to £10m of lifetime gains for qualifying startup founders from April 2027. The Budget also included a tripled trading allowance, a young entrepreneurs allowance, and a £20bn boost for the British Business Bank and National Wealth Fund.
Chancellor John Healey announced Founders' Relief, a 10% Capital Gains Tax rate on lifetime gains up to £10m from April 2027. The new relief for founders and significant early investors in UK startups was the centrepiece of a Budget that also tripled the trading allowance and launched a young entrepreneurs allowance. The Chancellor stated that the biggest barrier to fast growth firms in Britain is investment in Britain.
Eligibility rules for the relief are still in consultation and not finalized. The proposed criteria require a founder to have held a 25% stake from day one, achieved a £10m turnover, and employed 15 full-time staff in the year before the sale. The consultation on these eligibility rules closes on 30 November. Founders must retain accounts, payroll, and R&D records for up to ten years to support future claims via Self Assessment.
Support for scaling and female founders
The Budget allocates £20bn to the British Business Bank and the National Wealth Fund. The British Business Bank's financial capacity will increase by £5 billion to £30.6 billion, including £1.4 billion for equity funds and £450 million for venture debt. A new scaleup programme will support female founders, with the government doubling its contributions to £200m for women-led businesses. This comes amid a report finding the average deal for female-led AI start-ups was £800,000 compared to £5.3m for male-led start-ups.
Other measures include visa reforms to attract global talent and a data centre covenant requiring strict tests for job creation and water supply protection in exchange for critical grid connections. Gary Wojtaszek of Pure Data Centres Group welcomed the covenant's focus. The chancellor also emphasized seizing AI opportunities while guarding risks and ensuring data sovereignty for the NHS and armed forces.
Industry reaction and tax changes
Reaction from business leaders was mixed. Dom Hallas of the Startup Coalition called the Budget the boldest action backing startups and scaleups in years. Zena Hanks said the £10m Founders' Relief 'will be incredibly well received'. Isabella Galliers-Pratt stated that keeping general CGT rates unchanged provides welcome certainty for investors.
However, experts highlighted concerns. Professor Ross Brown of St Andrews Business School warned that insufficient domestic scale-up funding leads to UK firms being acquired by overseas companies. Linda Hardy, CEO of Business Leader, noted the Budget favoured startups and founders selling up. "What’s still missing though is the explicit support that scaling businesses need," Hardy said.
Significant tax changes accompany the new relief. The lifetime limit for the existing Business Asset Disposal Relief (BADR) will be halved from £1m to £500,000 from April 2027. The chancellor stated that three in four BADR claimants will face no changes. Michael Carter of Osborne Clarke described the policy changes as a 'mixed message' for entrepreneurs, noting the new relief could save qualifying owners a maximum of £30,000 in CGT over their lifetime.
| Policy Change | New Threshold/Limit | Effective From |
|---|---|---|
| Founders' Relief Lifetime Gain | £10 million | April 6, 2027 |
| Business Asset Disposal Relief (BADR) Lifetime Limit | £500,000 (reduced from £1m) | April 2027 |
| Company Share Option Plan (EMI2) | £120,000 | April 6, 2027 |
| Trading Allowance | £3,000 (raised from £1,000) | April 2027 |
| Retail, Hospitality & Leisure Business Rates Relief (England) | £18,000 (from £12,000) | April 2027 |
| Bank Corporation Tax Surcharge | 6% (increased from 3%) | Jan 1, 2027 to Mar 31, 2028 |
Further changes include a shift to smaller, more regular Payments on Account for Income Tax from April 2029, and a mandate for VAT invoices to be issued in a specified electronic format from April 2029. The non-compete clause legislation will be consulted on first, with a detailed position set for early 2027. Michael Edwards noted that frequent tax policy adjustments increase operational costs and complexity for wealth managers and investors.
The economic case for supporting growing firms is showed by data showing mid-market companies employ a quarter of the UK workforce. NatWest research indicates that just 1% growth in this sector could add £35bn to the economy by 2030. Yet, these companies are noted to be struggling with regulation and access to capital. A proposed audit exemption for medium-sized companies was not confirmed in the Budget.
Founders aiming to claim the new relief must prepare for rigorous record-keeping. They will need to retain accounts, payroll, and R&D records for up to ten years to support claims via Self Assessment.
