Budget: CGT Founders’ Relief. What you need to know

Which individuals could qualify?

An individual would need to have held at least 25 percent of the company’s ordinary share capital when the trade for which the company was formed, or preparation for that trade, commenced. Their shareholding must carry corresponding voting rights and rights to distributable profits and assets on a winding up.

The individual must also have held the shares or securities for at least five years before disposal and have been UK resident under the Statutory Residence Test for at least five continuous tax years before disposal. Relief is not restricted to shares acquired when the company was started or to the individual’s original shareholding.

The consultation makes it clear that only individuals can qualify for this relief. We do not expect trustees to be able to qualify.

Does the company qualify?

The company would need to be within the scope of UK corporation tax and have a substantial UK presence for the five accounting periods before disposal. It would also need to satisfy specified trading conditions and, in the accounting period before disposal, have turnover of at least £10 million and at least 15 qualifying full-time employees.

In addition, the company must meet at least two of three tests:

• Turnover - 25 percent annual average compound growth across three consecutive accounting periods within the 10 years before disposal, starting from turnover of at least £10 million;
• Headcount - at least 25 percent annual average compound growth in qualifying full-time equivalent employees over a corresponding period, starting with at least 15 employees; and/or
• Innovation - at least £1.5 million of qualifying research and development (R&D) expenditure, with R&D tax relief claimed for that expenditure for an accounting period or periods ending within the three years before disposal.

The holding companies of trading groups meeting the conditions should also qualify.

How will the relief work?

The relief will impute a 10 percent CGT rate on qualifying gains, with a lifetime limit of £10 million of gains. With the main rate of CGT at 24 percent, this could lead to a tax saving of up to £1.4 million at current rates.

The consultation notes that the £10 million limit will be reduced by amounts claimed under the limits for Business Asset Disposal Relief (BADR) and Investors’ Relief (IR) from 6 April 2027. We await further details of these rules.

Practical considerations

Evidence will be important. The consultation acknowledges that information needed to establish eligibility could relate to periods beyond existing statutory record-keeping requirements. It therefore proposes a statutory right for individuals to obtain relevant information and supporting documentation from companies.

There is also a potential risk where eligibility relies on an R&D tax relief claim. If subsequent HMRC compliance action determines that a relevant condition was not met, the individual could lose Founders’ Relief and face additional tax and interest.

Founders and companies may therefore wish to review historic ownership, residence, trading, turnover, headcount and R&D records against the proposed conditions. The consultation closes on 30 November 2026, with legislation intended through amendments to Finance Bill 2026-27.

Next steps for founders

Those considering an exit from 2027/28 onwards may wish to start assessing whether they could qualify for the relief, and how to collate the relevant records to substantiate a claim.

They should also be aware that these are not the final conditions, and we expect further details to be published in 2027.. Founders should wait for more clarity on the final position before making any decisions in respect of the relief.

For further information please contact:

• Hannah Barraclough
• Nathan Potton