Founders’ Relief reshapes the tax landscape for business sales – Autumn Budget 2026

New relief offers significant opportunities for qualifying founders

The government has announced a significant change to the way entrepreneurs are taxed when selling their businesses. From 6 April 2027, the lifetime limit for gains qualifying for Business Asset Disposal Relief (BADR) will reduce from £1 million to £500,000. At the same time, a new Founders’ Relief will be introduced, offering a 10% Capital Gains Tax rate on up to £10 million of lifetime gains for qualifying founders of high-growth, innovative companies.

The changes represent a shift in the government’s approach to supporting entrepreneurship. Rather than providing relief through a broad regime available to many business owners, the focus is moving towards founders who establish and grow businesses that deliver innovation, investment and economic growth.

What is changing?

BADR has long provided a reduced rate of Capital Gains Tax on qualifying business disposals. Subject to meeting the relevant conditions, it can apply to a range of qualifying disposals, including shares in trading companies and certain business assets used in a trade.

While BADR remains available, the value of the relief will be reduced from April 2027 when the lifetime allowance falls from £1 million to £500,000. This means the maximum tax saving available under the relief will be halved.

At the same time, the government is introducing Founders’ Relief, although this will be aimed at a much narrower audience. Unlike BADR, which can apply to various qualifying business disposals, Founders’ Relief is expected to focus on qualifying shareholdings held by founders of innovative, high-growth companies.

Who is likely to qualify?

The detailed legislation has yet to be published, but the consultation provides an indication of the government’s intended direction.

To qualify for Founders’ Relief, individuals are expected to need to satisfy a number of conditions, including:

• Holding shares in the company being sold.
• Meeting minimum shareholding and voting rights requirements.
• Having a meaningful economic stake in the business.
• Being an employee or office holder of the company.
• Holding the shares for a minimum qualifying period.
• Playing a genuine role in creating, developing and growing the business.
• Operating within a company that satisfies the government’s innovation and growth criteria.

This means Founders’ Relief is not simply a more generous version of BADR. Many existing business owners who would qualify for BADR may not satisfy the additional requirements expected under the new regime.

What could this mean in practice?

The potential tax outcomes could vary significantly depending on whether a business owner qualifies for Founders’ Relief.

Illustrative example only. Figures are intended to demonstrate the relative value of the reliefs and should not be relied upon as tax advice.

The figures highlight how significantly the value of entrepreneurial tax relief could diverge depending on whether an individual qualifies for Founders’ Relief. From April 2027, the maximum tax saving available under BADR will be £30,000. By contrast, a qualifying founder could save up to £1.4 million compared with paying Capital Gains Tax at 24% on a £10 million gain.

In practical terms, relief that has historically been available to a broad range of business owners is being narrowed, whilst a significantly more valuable incentive is being introduced for a smaller group of founders. Whilst founders of successful growth businesses may benefit from the changes, other business owners could see the tax cost of a future sale increase.

Looking ahead

As with many Budget announcements, the detail will be crucial. The final legislation will determine exactly who qualifies, how the conditions operate in practice and whether existing business structures are suitable.

Business owners should also recognise that Founders’ Relief appears to be focused on founder shareholdings rather than acting as a replacement for every scenario in which BADR can currently apply. Understanding both the nature of the assets being sold and the history of ownership is therefore likely to become increasingly important.

Anyone considering a business sale, succession plan or shareholder reorganisation over the coming years should review their plans now. Understanding whether Founders’ Relief may be available could influence both the timing and structure of a future disposal.

James Amico, Private Client Tax Senior Manager at Kreston Reeves, comments:

“The headline announcement of a 10% tax rate on up to £10 million of gains will attract plenty of attention, but the real impact will depend on who qualifies.

The consultation suggests the new relief will require much more than simply owning shares in a business. The founder’s role, level of ownership, voting rights and ongoing involvement are all likely to be important. Anyone considering a sale in the next few years should seek advice early, as the timing and structure of a transaction could have a significant impact on the reliefs available and the overall tax bill.”

If the Budget has raised any questions for you, book your place on our question time webinar this Friday at 9:30am. Alternatively, if you would like any further information or guidance on this topic, get in touch with your usual Kreston Reeves contact or contact us here.