For many years, the UK has used Capital Gains Tax (CGT) reliefs to encourage entrepreneurship and investment. Business Asset Disposal Relief (BADR), previously known as Entrepreneurs’ Relief, currently allows qualifying business owners to pay a reduced rate of CGT on eligible disposals, subject to a £1 million lifetime limit. However, successive reforms have narrowed the scope and value of the relief. 

Against this backdrop, the Government used the Budget 2026 to launch a consultation on a new Founders’ Relief. The proposal is designed to support founders and significant early investors who create and scale high-growth, innovative UK businesses. Importantly, this is currently a consultation proposal rather than enacted law, and the final shape of the relief may change before legislation is introduced. 

For business owners considering a future exit, the proposal could represent a significant tax opportunity, particularly for entrepreneurs who exceed the existing BADR lifetime limit. 

What has changed? 

The Government has announced a technical consultation on a new CGT Founders’ Relief, with legislation expected to be introduced through amendments to Finance Bill 2026-27. The consultation closes on 30 November 2026 and the relief is intended to apply to qualifying disposals made on or after 6 April 2027. 

Proposed comparison 

Feature	BADR (from 6 April 2027)	Proposed Founders’ Relief
Nature of relief	Existing relief	New proposed relief
CGT rate	18% on qualifying gains	10% on qualifying gains
Lifetime limit	£500,000 (reduced from £1 million)	£10 million
Status	Legislated proposal in Finance Bill 2026/27.	Subject to consultation. The government will use responses to finalise the design, with legislation to be introduced in Finance Bill 2026/27. The relief will apply to qualifying disposals made on or after 6 April 2027.
Target group	Business owners meeting qualifying conditions	Founders and significant early investors in high-growth UK companies

 

The proposed Founders’ Relief would provide a 10% CGT rate on qualifying gains up to a lifetime cap of £10 million. However, amounts claimed under BADR and Investors’ Relief (IR) after 6 April 2027 would reduce the available Founders’ Relief limit. 

 

Who is likely to qualify? 

The consultation proposes a deliberately targeted relief. 

Individual conditions 

To qualify, an individual would generally need to: 

• Have held at least 25% of the company’s ordinary share capital, voting rights and economic rights when the trade began. 

• Have held their shares or securities for at least five years before disposal. 

• Have been UK tax resident for at least five continuous tax years before disposal. 

Unlike some previous reliefs, the proposal would not restrict relief solely to the founder’s original shares. Additional qualifying shareholdings could potentially benefit provided the wider conditions are met. 

Company conditions 

The company would need to: 

• Be within the UK corporation tax net. 

• Be a trading company, or holding company of a trading group. 

• Avoid substantial non-trading or excluded activities. 

• Have turnover of at least £10 million in the accounting period before disposal. 

• Employ at least 15 qualifying full-time employees. 

These conditions are intended to focus the relief on genuine scale-up businesses rather than passive investment structures or asset-holding companies. 

Growth and innovation requirements 

A particularly distinctive aspect of the proposal is that companies must demonstrate both scale and success. 

The company would need to satisfy at least two of three tests: 

1. Turnover growth test 

Annual compound turnover growth of at least 25% across three consecutive accounting periods, starting from a turnover base of at least £10 million. 

1. Employment growth test 

Annual compound growth in qualifying employee numbers of at least 25% across three consecutive accounting periods, beginning with at least 15 qualifying employees. 

1. Innovation test 

At least £1.5 million of qualifying R&D expenditure on which the company has claimed UK R&D tax reliefs within a relevant period prior to disposal. 

The Government’s intention is to focus the relief on businesses that create new products, technologies, services and jobs rather than simply appreciating in value. 

What are the practical implications? 

For founders of successful technology, life sciences, software, engineering and other innovation-led businesses, the proposed £10 million lifetime limit is potentially far more valuable than the significantly reduced BADR regime. 

Illustrative example 

Assume a founder sells shares after building a qualifying technology business and realises a gain of £10 million. 

Under the proposed Founders’ Relief, the entire gain could potentially qualify for the 10% CGT rate, resulting in a tax liability of approximately £1,000,000. 

Without the relief, a significantly higher tax liability of £2,370,000 could arise. 

However, many businesses will not qualify. Founder-owned companies with slower growth, fewer employees, lower turnover or no qualifying R&D activity may fall outside the proposed rules.  

What should business owners do now? 

As the relief remains under consultation, business owners generally do not need to undertake immediate restructuring solely to access the regime. 

However, founders and their advisers should consider: 

• Responding to the consultation by 30 November. 

• Monitoring the consultation and draft legislation as they progress. 

• Assessing eligibility against current and planned activities to identify who is likely to qualify. 

• For those unlikely to qualify, considering whether gains could be crystallised before April 2027 while the higher BADR limit remains available. 

• Reviewing ownership structures and shareholdings. 

• Considering how future exit plans may interact with BADR and any future Founders’ Relief claims. 

Where transactions are being contemplated after April 2027, early analysis may become increasingly important as the legislation develops. 

Conclusion 

Although the proposed relief appears generous and echoes the former Entrepreneurs’ Relief, its eligibility criteria are considerably narrower. Many businesses will not qualify, as they will need to demonstrate meaningful growth, innovation and UK economic activity. 

The proposal also remains subject to consultation and has not yet become law. 

Founders planning a future disposal should therefore monitor the consultation closely, as it could influence exit planning and investment decisions in the coming years.