Founders’ Relief Explained: Who Qualifies for the New 10% CGT Rate

The headline of the 2026 Budget for founders was a new Founders’ Relief: a 10% rate of capital gains tax on up to £10m of lifetime gains, for sales from 6 April 2027. That’s a big prize. On a £10m gain, a higher-rate taxpayer would pay £1m instead of around £2.4m.

But it isn’t for everyone. The government has designed it for founders of companies that have grown fast, and the qualifying rules are strict. This guide explains how the relief works and, above all, whether you’re likely to qualify.

What Founders’ Relief is

Founders’ Relief reduces the CGT rate to 10% on qualifying gains when you sell shares in your company, up to a lifetime limit of £10m. Key points:

• It’s per person. Several co-founders can each claim up to £10m on the same company.
• It covers founders and significant early investors, as long as they meet the shareholding tests.
• It applies to all your shares, not just those you got when you started the company.
• There’s no requirement to reinvest. Many had lobbied for a reinvestment relief; the government chose a straightforward lower rate instead.
• Only individuals can claim, not companies or trusts.

The rules are out for technical consultation until 30 November 2026, so the detail could still change before the legislation is finalised.

How it compares to Entrepreneurs’ Relief

If the headline sounds familiar, it should. Between 2011 and 2020, Entrepreneurs’ Relief gave a 10% rate on up to £10m of lifetime gains, exactly the same deal. In 2020 the limit was cut to £1m and the relief renamed Business Asset Disposal Relief (BADR), and since then its rate has risen to 18%. From April 2027, BADR’s limit halves again, to £500,000.

The difference is who gets it. Entrepreneurs’ Relief was open to almost anyone with at least 5% of a trading company who worked in the business, held for a year or two, whatever the company’s size or growth. Founders’ Relief asks for a 25% founding stake, five years of ownership, a company with at least £10m turnover and 15 staff, and proof of rapid growth or serious R&D. Same reward, much higher bar.

Who qualifies: the conditions

To claim Founders’ Relief, both you and your company need to meet a set of conditions, and the company also has to pass growth and innovation tests (next section).

Conditions for you

• A 25% founding stake. You must have held at least 25% of the company’s ordinary share capital, with matching voting rights and rights to profits and assets, at the point the company started trading or started preparing to trade. The test looks at the start; later dilution below 25% doesn’t count against you. You can meet it through the holding company of a trading group.
• Five years of ownership. You must have held the shares or securities for at least five years before you sell.
• Five years of UK residence. You must have been UK resident under the Statutory Residence Test for at least five continuous tax years before the sale.

Conditions for your company

• UK-based. It must be within the scope of UK corporation tax and have had a substantial UK presence for the five accounting periods before the sale.
• A trading company. It must be a trading company, or the holding company of a trading group, without substantial non-trading activities. The excluded activities are the same as for EIS, such as dealing in land, financial activities and property development.
• The same trade. It must still be carrying on the trade it was set up for, with no major change in its nature.
• At least £10m turnover in the accounting period before the sale.
• At least 15 qualifying full-time employees in the accounting period before the sale. That means people working at least 35 hours a week and paid at least the National Minimum Wage. Directors, contractors and agency workers don’t count.

The growth and innovation tests

On top of the conditions above, your company has to show it has grown fast or innovated seriously. It must pass at least two of these three tests:

Test	What the company needs to show	Starting point
Turnover growth	Average annual compound growth of 25% across three consecutive accounting periods within the ten years before the sale	At least £10m turnover in the year before the three-year run
Headcount growth	Average annual compound growth of at least 25% in qualifying full-time employees across three consecutive accounting periods within the ten years before the sale	At least 15 full-time employees in the year before the three-year run
Innovation	At least £1.5m of qualifying R&D spend, with R&D tax relief claimed on it, for periods ending in the three years before the sale	None

A few things are worth knowing:

• The growth window can be any three years in the last ten. You don’t need to be growing at 25% when you sell, but you do need a three-year run of that growth from a base of at least £10m turnover or 15 staff.
• 25% compound growth over three years means roughly doubling. For example, turnover going from £10m to about £19.5m, or headcount from 15 to around 30.
• The innovation test relies on R&D tax relief claims. You need to have actually claimed relief on the spend, not just carried out R&D. If HMRC later rejects that R&D claim, your Founders’ Relief could go with it.
• Companies that don’t claim R&D relief can still qualify, but only by passing both growth tests.

Will you qualify? Some common scenarios

The 25% founding stake and the £10m turnover floor will decide most cases. Here’s how the proposed rules might apply to some typical founders:

Scenario	Likely to qualify?	Why
Two co-founders split 50/50, raise VC, grow from £10m to £25m turnover over three years, and sell after eight years	Yes	Both held 25%+ at the start; dilution later doesn’t matter; turnover test met, and probably headcount too
Four co-founders with 25% each	Yes, all four, if the company tests are met	25% is the minimum, so an equal four-way split just qualifies
Three co-founders with 30% each and 10% to an early angel	Founders yes; the angel no	The angel’s 10% is below the 25% threshold
Five equal co-founders at 20% each	No	None of them held 25% when the company started
SaaS company sold at £6m turnover after strong growth	No	Below the £10m turnover floor in the year before the sale
Profitable services business with £15m turnover, steady 10% growth, no R&D claims	No	Fails all three growth and innovation tests
Deep-tech company with £12m turnover, slow revenue growth, £2m a year of claimed R&D, and a full-time team that grew from 15 to 30 over three years	Yes, if the founder tests are met	Fails the turnover test, since revenue never grew 25% a year from a £10m base, but passes the headcount and innovation tests: two out of three is enough
Founder who moved to the UK three years before the sale	No	Fewer than five continuous years of UK residence

If you don’t qualify, BADR is still there: 18% on up to £500,000 of lifetime gains from April 2027, with a 5% shareholding test and no growth requirements.

Founders’ Relief and BADR

The two reliefs share a budget. Your £10m Founders’ Relief limit will be reduced by any amounts claimed under BADR and Investors’ Relief. The consultation doesn’t yet make clear whether BADR you’ve used before April 2027 counts too. At the same time, BADR’s own lifetime limit halves from £1m to £500,000 for sales from 6 April 2027.

That makes timing important. A sale before 6 April 2027 can still use BADR’s £1m limit at 18%, but Founders’ Relief won’t be available yet. A sale after that date could get 10% on up to £10m, if you and your company meet every test. For larger exits that qualify, waiting is likely to pay; for smaller ones that don’t, selling earlier could save tax.

How you’ll claim

• Through self-assessment. You’ll claim in your tax return for the year of the sale, giving details of the periods you’re relying on for each test. HMRC may require a standard form alongside it.
• You’ll need the company’s records. Much of the evidence, such as turnover, headcount and R&D claims across up to ten years, sits with the company. The government plans a legal right for you to request it, which matters most if you’ve left the business or sold to a buyer.
• Eligibility can be revisited. If HMRC later finds that a condition wasn’t met, for example by rejecting an R&D claim you relied on, you could lose the relief and owe the extra tax with interest.
• Expect anti-avoidance rules aimed at restructuring a business just to bring it within the relief.

What to do now

1. Check the 25% test first. Look at your cap table when the company started trading. If you didn’t hold 25% then, Founders’ Relief isn’t for you, and you can plan around BADR instead.
2. Map your growth history. Find your best three-year runs of turnover and headcount growth, and whether you started from at least £10m or 15 staff.
3. Keep R&D claims robust. If you’ll rely on the innovation test, make sure your R&D claims are well documented and would stand up to an HMRC enquiry.
4. Have your say. The consultation closes on 30 November 2026. If the rules would unfairly exclude your business, respond to EnterpriseTax@hmtreasury.gov.uk, or talk to us and we can help.

Planning an exit? Our mergers and acquisitions team can help you prepare for a sale, and our personal tax advisors can work out which relief you’re likely to get.