The government’s proposed Founders' Relief could allow qualifying entrepreneurs to pay just 10% Capital Gains Tax when selling shares in a successful business. However, the eligibility conditions are demanding, and many business owners who consider themselves founders may not qualify.
Announced in the Autumn Budget on 28 October 2026, Founders' Relief is intended to reward individuals who establish and grow innovative UK companies. The proposed lifetime limit is £10 million of qualifying gains per individual. The detailed conditions remain subject to consultation and legislation.
Founders' Relief at a glance
| Feature | Proposed treatment |
|---|---|
| CGT rate | 10% |
| Lifetime limit | £10 million of qualifying gains per individual |
| Proposed start | 6 April 2027 |
| Original ownership | At least 25% with corresponding rights |
| Holding period | Five years |
| UK residence | Five continuous tax years before disposal |
| Company scale | Turnover of at least £10m and at least 15 qualifying full-time equivalents |
| Growth/innovation | At least two of three specified tests |
Important: These are consultation proposals, not final enacted conditions. The technical consultation published in October 2026 closes on 30 November 2026.
How does Founders' Relief work?
Founders' Relief is a proposed Capital Gains Tax reduction designed to reward entrepreneurs who establish and grow successful UK businesses.
Under the proposals, qualifying founders could pay just 10% Capital Gains Tax when selling their shares, rather than the standard rate of up to 24%. For someone making a £10 million qualifying gain, this could mean a tax saving of up to £1.4 million
However, the relief isn't available to every business owner. Unlike Business Asset Disposal Relief (BADR), Founders' Relief is aimed specifically at businesses that meet demanding requirements relating to their size, growth and innovation
Consequently, founding a company or achieving a substantial sale price won't automatically qualify you for the reduced tax rate.
Who can claim Founders' Relief?
Qualifying for Founders' Relief isn't simply a question of having established a successful business. The proposed rules include three important conditions relating to the founder's original ownership, how long they've held their shares and their UK tax residence.
Did you own at least 25% of the company when it started?
Under the proposals, founders must have held at least 25% of the company's ordinary share capital when the business began trading or preparing to trade.
However, the percentage of shares owned isn't the only consideration. Voting rights and entitlement to profits and assets also matter. Consequently, companies with different share classes may need to examine their ownership arrangements carefully
Nevertheless, share reorganisations, additional share acquisitions and changes to shareholder rights could complicate matters. Their treatment will need to be considered against the final legislation.
How long must founders have held their shares?
The proposed minimum holding period is five years, compared with the generally applicable two-year requirement for Business Asset Disposal Relief.
This means founders planning an exit should check when they originally acquired their shares, particularly where they've received additional shares or participated in a company reorganisation
For some entrepreneurs, the timing of a sale could make a substantial difference to their eligibility.
Do founders need to be UK tax resident?
Yes. The proposals require founders to have been UK tax resident for five continuous tax years before disposing of their shares
This could be particularly important for entrepreneurs who have relocated overseas or divided their time between countries
Even where a UK company meets all the business requirements, its founder could still fail the personal residence test
Therefore, internationally mobile founders should review their residence history under the Statutory Residence Test well before agreeing a sale.
Which businesses qualify for Founders' Relief?
Not every successful company will qualify. In fact, some of the most demanding conditions relate to the business itself rather than its founder
Under the proposals, the company must be a qualifying trading company, or the holding company of a qualifying trading group, within the scope of UK Corporation Tax.
It must also have a substantial UK presence throughout the preceding five accounting periods and satisfy requirements relating to the continuation of its original trade
Certain activities, including property development and specified financial activities, are excluded.
How big must a company be to qualify?
The proposed rules require the business to have:
These requirements mean that even a highly profitable technology company could fail to qualify if it hasn't reached the necessary scale
However, meeting the minimum turnover and employee thresholds isn't enough on its own. The business must also demonstrate qualifying growth or investment in research and development.
What are the three growth and innovation tests?
To qualify for Founders' Relief, a company must satisfy at least two of the following three tests:
| Test | Proposed requirement |
|---|---|
| Turnover growth | At least 25% compound annual growth over three consecutive accounting periods within the preceding ten years, beginning with turnover of at least £10 million. |
| Employee growth | At least 25% compound annual growth in qualifying full-time equivalents over three consecutive accounting periods within the preceding ten years, beginning with at least 15 employees. |
| R&D expenditure | At least £1.5 million of qualifying R&D expenditure, supported by relevant R&D tax relief claims for accounting periods ending within three years before disposal. |
A software company growing from £2m to £12m turnover may be highly successful yet fail the turnover-growth test because the starting turnover threshold is £10m. Similarly, workforce growth from five to 20 does not by itself meet the employee-growth test. Both starting thresholds and growth rates matter.
| Growth period | Annual turnover |
|---|---|
| Starting turnover | £10,000,000 |
| After year 1 | £12,500,000 |
| After year 2 | £15,625,000 |
| After year 3 | £19,531,250 |
This represents a 95.3% increase in turnover over three years, equivalent to 25% compound annual growth.
Importantly, the company must also satisfy the proposed £10 million starting turnover threshold. A business growing from £2 million to £12 million may have achieved impressive growth, but that period wouldn't satisfy the test because its starting turnover was too low.
The relevant accounting periods and turnover figures would need to be assessed against the final legislation.
How much tax could Founders' Relief save you?
For founders selling a successful business, the potential capital gains tax savings could be significant.
Under the proposals, qualifying gains would be taxed at just 10%, compared with the standard Capital Gains Tax rate of up to 24%
For example, suppose you sell your shares in a technology company and realise a fully qualifying taxable gain of £5 million
Without Founders' Relief, Capital Gains Tax at 24% would amount to £1.2 million. However, if the entire gain qualifies for the proposed 10% rate, the tax liability would fall to £500,000
That's a potential tax saving of £700,000.
The comparison below illustrates the difference.
| Tax treatment | Capital Gains Tax |
|---|---|
| Standard CGT rate (24%) | £1,200,000 |
| Founders' Relief (10%) | £500,000 |
| Potential tax saving | £700,000 |
These figures assume the entire gain qualifies for Founders' Relief and would otherwise be taxed at 24%. They exclude the annual exempt amount, allowable losses and any other reliefs or adjustments
For founders with larger gains, the potential savings could be even greater, with the proposed £10 million lifetime limit allowing tax savings of up to £1.4 million compared with the 24% rate.
Founders' Relief or Business Asset Disposal Relief: What's the difference?
Although both reliefs can reduce the Capital Gains Tax payable when selling a business, there are important differences in who qualifies and how much tax can be saved.
Business Asset Disposal Relief (BADR) is available to a broader range of qualifying business owners, including directors and shareholders of owner-managed companies. By contrast, Founders' Relief is aimed at entrepreneurs who establish and grow businesses meeting demanding ownership, growth and innovation requirements
Under the Autumn Budget 2026 proposals, the lifetime limit for BADR will fall from £1 million to £500,000 from 6 April 2027. The BADR tax rate is already 18% for qualifying disposals from 6 April 2026
Founders' Relief, however, would offer a lower 10% rate on up to £10 million of qualifying gains, making it potentially much more valuable for founders selling high-growth businesses.
The table below highlights the key differences.
| Condition | Founders' Relief (proposed) | BADR (from 6 April 2027) |
|---|---|---|
| CGT rate | 10% | 18% |
| Lifetime qualifying gains | £10 million | £500,000 |
| Ownership | 25% at commencement, subject to rights tests | Generally 5%, subject to further conditions |
| Holding period | Five years | Generally two years |
| Growth and innovation tests | At least two of three specified tests | No equivalent requirement |
| Five-year UK residence requirement | Yes | No equivalent requirement |
Can you claim both Founders' Relief and BADR?
Potentially, but the interaction between the two reliefs needs careful consideration.
Under the consultation proposals, the £10 million Founders' Relief lifetime allowance would be reduced by qualifying gains on which BADR or Investors' Relief is claimed from 6 April 2027
For example, a founder who claims BADR on £500,000 of gains after that date could have their remaining Founders' Relief allowance reduced to £9.5 million
Importantly, the two reliefs cannot simply be combined to obtain both reduced tax rates on the same gain
For founders contemplating a substantial business sale, reviewing previous relief claims and the proposed lifetime allowance rules could therefore be an important part of their tax planning
The final interaction between the reliefs will depend on the legislation enacted.
Does venture capital investment affect Founders' Relief?
Raising investment is an important part of growing many technology businesses. However, successive funding rounds can significantly change a founder's shareholding and the rights attached to their shares
Under the proposed Founders' Relief rules, a founder who originally owned a majority stake could still qualify even if their shareholding has subsequently been diluted through seed funding or venture capital investment
However, dilution isn't the only consideration. Investment rounds often introduce preference shares, different voting rights, employee share options and corporate reorganisations. These arrangements could affect eligibility, particularly where the original ownership conditions or the continuity of the founder's shareholding are in question.
Consequently, founders should retain their original articles of association, shareholder agreements, shareholding records and documentation relating to subsequent investment rounds or reorganisation
The key point is that a reduced shareholding doesn't automatically prevent a claim for Founders' Relief. However, the original ownership rights and subsequent transactions will need to be reviewed against the final legislation.
Could changing your business model affect Founders' Relief?
Technology businesses rarely stand still. A company might begin by providing consultancy services before developing its own software platform, introducing subscription-based products or expanding into entirely new markets
However, under the proposed Founders' Relief rules, significant changes to the nature of a company's original trade could affect its eligibility
The important distinction is whether the business has simply developed or expanded its existing trade, or whether its activities have changed so substantially that it is effectively carrying on a different trade
For example, a software consultancy that develops its own SaaS product may have evolved naturally from its original activities. However, a complete shift into an unrelated business could raise more difficult questions
A change in business model won't necessarily disqualify a company from Founders' Relief. The outcome will depend on the commercial facts and how the continuity requirements are defined in the final legislation.
Consequently, founders should maintain clear records of how their business has developed, including major changes in products, services and commercial activities. This could provide valuable evidence when assessing eligibility ahead of a future sale.
Why R&D tax relief claims could be critical for Founders' Relief
For technology companies investing heavily in innovation, qualifying research and development (R&D) expenditure could play an important role in securing Founders' Relief.
Under the proposals, one of the three growth and innovation tests requires at least £1.5 million of qualifying R&D expenditure, supported by relevant R&D tax relief claims
However, founders should be aware of a potential complication. The company makes the R&D tax relief claim, but it's the individual shareholder who ultimately claims Founders' Relief when selling their shares
Consequently, if HMRC successfully challenges an earlier R&D claim, the company's qualifying expenditure could be reduced. This may also affect the founder's eligibility for the proposed 10% Capital Gains Tax rate, particularly where the company relies on the R&D test to satisfy two of the three growth and innovation conditions
For businesses approaching a sale, R&D claims should therefore form part of the tax due diligence process. Supporting evidence, including technical project documentation, expenditure records and details of claims submitted to HMRC, should be reviewed well before a transaction.
The important point is that an R&D claim isn't simply a Corporation Tax matter. Under the proposed rules, the strength of the company's historic R&D claims could also influence the Capital Gains Tax payable by its founder on a future exit
The precise consequences of any subsequent HMRC challenge will depend on the final legislation.
Can founders living overseas qualify for Founders' Relief?
For entrepreneurs who have moved abroad, or who divide their time between the UK and other countries, tax residence could be a significant obstacle to claiming Founders' Relief.
Under the proposals, founders must have been UK tax resident for five continuous tax years before disposing of their shares
Consequently, a founder who established a successful UK technology company but subsequently relocated overseas could fail to qualify, even if the business meets all the ownership, growth and innovation requirements
Similarly, returning to the UK shortly before selling the company wouldn't necessarily restore eligibility. The founder's residence history throughout the relevant five-year period would need to be considered
Importantly, a company's UK tax residence and its founder's personal tax residence are separate matters. Operating a UK company doesn't automatically make its shareholders UK tax resident
Internationally mobile founders should therefore review their position under the Statutory Residence Test, consider any relevant double taxation agreement and assess how the timing of a proposed sale could affect their tax liability
The interaction between the proposed residence requirement, split-year treatment and treaty residence will need careful consideration once the legislation is finalised
For founders planning an international relocation or a future business exit, obtaining advice well in advance could make a substantial difference.
How should founders prepare for an exit under Founders' Relief?
For founders considering selling their business, preparing for Founders' Relief should begin well before negotiations with potential buyers.
Although the legislation has yet to be finalised, the proposed conditions suggest that eligibility could depend on decisions made several years before a sale.
Consequently, founders should consider the following five areas when planning an exit.
1. Review your original shareholding and investment history
Check the company's original share capital, voting rights and economic entitlements, together with any subsequent funding rounds, share reorganisations or changes to shareholder rights
For venture-backed businesses, it's particularly important to establish whether the founder satisfied the original 25% ownership requirements before dilution occurred.
2. Check your shareholding period and UK tax residence
Confirm when your shares were acquired and whether the proposed five-year holding period has been satisfied
You should also review your UK tax residence history, particularly if you've lived or worked overseas. A qualifying UK company doesn't automatically mean its founder meets the personal residence requirements
3. Assess the company's historic growth
Review turnover and qualifying employee numbers to establish whether the business meets the proposed minimum thresholds and growth tests
Importantly, the calculations should cover the relevant historic accounting periods, rather than simply relying on the company's current performance.
4. Review R&D expenditure and previous tax relief claims
Where the company intends to rely on the R&D test, check that qualifying expenditure is supported by appropriate records and relevant R&D tax relief claims
Any outstanding HMRC enquiries or uncertainties over historic claims should also be considered before proceeding with a sale.
5. Consider the structure and timing of the disposal
The way a business is sold could affect eligibility for Founders' Relief
For example, a straightforward share sale may raise different issues from a share-for-share exchange, corporate reorganisation or transaction involving deferred consideration
Founders should therefore review the proposed transaction structure and timing against the final legislation before entering into binding arrangements.
Which UK business founders are most likely to benefit from Founders' Relief?
At first glance, a 10% Capital Gains Tax rate on up to £10 million of qualifying gains looks extremely attractive. However, our assessment is that Founders' Relief is likely to benefit a relatively small proportion of UK business owners.
The proposed conditions appear particularly favourable to founders of established, high-growth technology businesses that have achieved significant scale while maintaining a substantial UK presence.
Nevertheless, even a successful business sale won't necessarily qualify.
For example, a profitable software company could fail the tests because it hasn't reached the minimum employee threshold. Equally, a rapidly growing business might not qualify if its historic turnover or employee numbers were below the required starting levels.
Other founders could be excluded because they haven't held their shares for five years, have changed the nature of their original trade or don't meet the proposed UK residence requirement
For many owner-managed businesses, Business Asset Disposal Relief will therefore remain the more relevant Capital Gains Tax relief, despite its lower lifetime allowanc
In our view, the greatest planning risk is assuming that commercial success automatically translates into eligibility for Founders' Relief.
The proposed rules require a detailed assessment of the founder's original ownership rights, the company's historic trading activities, its growth and innovation record, and the structure of the eventual disposal
For technology founders in particular, these issues should be considered well before an exit. Investment rounds, corporate reorganisations and international relocations can all have consequences that may be difficult to address retrospectively
Our conclusion is that Founders' Relief could offer substantial tax savings, but the qualifying conditions are likely to be considerably more restrictive than the headline 10% rate suggests
Until the legislation is finalised, founders should treat the relief as a potential opportunity rather than an entitlement and assess their position against the detailed statutory requirements.
Planning to sell your technology business?
Selling a successful business can create a substantial Capital Gains Tax liability. With the proposed introduction of Founders' Relief, understanding whether you qualify for the 10% rate could make a significant difference to how much of the proceeds you retain
At The Friendly Accountants, we advise technology founders and business owners on complex UK tax matters, including share ownership, investment structures, Capital Gains Tax and business disposals. We understand how funding rounds, corporate reorganisations and international tax residence can affect a founder's position
If you're considering selling your business, it's worth reviewing the tax implications well before agreeing a deal. We can help you assess the proposed Founders' Relief conditions, consider the availability of Business Asset Disposal Relief and identify tax issues that may need addressing before an exit.
If you'd like to discuss a proposed exit or any other matters you think we could help you with please, complete our Business Questionnaire and a member of our team will be in touch.
You can also find more of our practical guidance for growing technology businesses in our AI, SaaS and Tech Startup Hub.
Source and legislative status: This article is based on the government's Founders' Relief technical consultation, published on 28 October 2026, alongside HMRC's guidance on Business Asset Disposal Relief. The consultation closes on 30 November 2026. Founders' Relief remains a proposal, and the qualifying conditions may change before legislation is enacted.