Founders' Relief, the BADR cut, and who actually gains

The attention-grabbing line from the Budget was a new "Founders' Relief": a 10% Capital Gains Tax rate on up to £10 million of gains. For the small number of people it fits, that is a genuinely valuable break. For most business owners, though, it is not the part of this announcement that will actually affect them.

Two things are happening at once, from the same date, and they pull in opposite directions. One is generous and very narrow. The other is a straightforward reduction that reaches far more owners. It is worth being clear about which is which before you read too much into the headline.

A generous new rate for around 600 people a year, and a smaller relief for almost everyone else.

Two changes, one date

Both changes take effect for disposals on or after 6 April 2027.

Business Asset Disposal Relief (BADR), the relief most owners know, is being cut back. The lifetime limit on gains that qualify drops from £1 million to £500,000. The relief rate itself stays at 18%, so the change is to how much of your gain benefits, not the rate on it.

Alongside it, the new Founders' Relief offers a 10% rate on up to £10 million of lifetime gains. Two things to note straight away. It is still a proposal, out for consultation until 30 November 2026, so the detail can change. And the £10 million is not extra: it is reduced by any BADR and Investors' Relief you claim from 6 April 2027, so you cannot simply stack one relief on top of the other.

The BADR cut is the one most owners will feel

Because the rate stays the same, the effect of the BADR change depends on the size of your gain. If your gain sits within your remaining £500,000 lifetime limit, the reduction will not touch it, so a lot of smaller disposals will not notice this at all. BADR is a lifetime relief, so anything you have already claimed counts towards the limit.

Above that, the benefit shrinks. For an owner with a £1 million qualifying gain who does not qualify for anything else, the reduced limit means roughly £30,000 more Capital Gains Tax if the disposal falls on or after 6 April 2027 rather than before. Measured against the main 24% rate, the most BADR can now save a person falls from about £60,000 to about £30,000.

That is the quiet story in this announcement. It is not aimed at high-growth founders at all. It lands on ordinary business owners with a gain over £500,000, including people who have spent twenty years building a solid, profitable company and are now thinking about selling or stepping back.

Founders' Relief sounds generous, but it is narrow by design

Now the headline relief. A 10% rate on up to £10 million of gains is clearly attractive. The question is how many business owners will ever meet the conditions, and the government's own estimate is telling: around 600 individuals a year are expected to qualify.

As drafted, both the founder and the company have to clear a demanding set of tests. The company is expected to need turnover of at least £10 million and at least 15 full-time-equivalent employees in the period before the sale, and to meet at least two of three growth or innovation tests: 25% compound annual growth in turnover across three accounting periods, starting from turnover that is already at least £10 million, the same 25% compound growth in employee numbers from a base of at least 15, or at least £1.5 million of qualifying research and development spend. Those starting thresholds matter, because the growth has to be from an already sizeable base, not from a standing start. Excluded activities follow the Enterprise Investment Scheme list, so trades such as dealing in land, property development and certain financial services do not count. The founder, or a qualifying early investor, is expected to have held at least 25% of the ordinary shares when the company started trading, held them for at least five years, and been UK resident for at least five continuous tax years.

Our take: this is a relief for a particular kind of fast-scaling company, not for the typical owner-managed business. And some of the edges look sharp. A founder who has grown a business from nothing to £8 million of turnover has built something excellent and would still miss the £10 million threshold. A company that pivoted successfully, or grew by acquisition, could fall foul of a condition that its original trade must continue without a major change. It is worth asking whether the tests reward successful entrepreneurship generally, or only one model of it.

The international angle, told straight

The five-year UK residence condition has had some attention, and it is easy to tell this one wrongly, so it is worth being precise.

If a founder becomes genuinely non-UK resident and sells shares in a UK trading company while non-resident, they usually have no UK Capital Gains Tax to pay on that gain in the first place, subject to the temporary non-residence rules and some exceptions such as property-rich companies. In that situation, Founders' Relief is simply not relevant to them. So it would be wrong to say that founders who move abroad are losing a valuable relief. Often they would have had no UK charge to relieve.

Where the residence condition could genuinely matter is the founder who returns to the UK before selling, in which case the relief may well be in point. There is also a question about how it interacts with the temporary non-residence rules, where a gain made while abroad can become taxable on return. That one needs watching, because the final legislation will decide whether the relief is actually available in that situation rather than it being safe to assume. For internationally mobile founders, then, the real questions are about the timing of UK residence, how the business is structured, and whether a UK tax charge arises at all, rather than simply whether this one relief is available. That is exactly the kind of position worth mapping out properly, and the kind of work we do day to day, rather than assuming either way.

If a sale is anywhere on your horizon

The practical point is about timing and eligibility, and it applies now even though the rules are not final.

If you are thinking about a sale, bringing in investors, or succession around April 2027, it is worth modelling the position before you commit to anything: the size of the gain, how much BADR you have already used, whether Founders' Relief is realistically within reach, and your residence position if you spend time abroad. One word of caution on timing: the government has proposed anti-forestalling measures, so simply signing a contract before April may not be enough to lock in the old £1 million BADR limit. The detail will matter.

And it bears repeating that Founders' Relief is still a consultation, closing on 30 November 2026, so none of its conditions are settled law yet.

If a disposal is on the horizon and you want to understand where you actually stand under both reliefs, book a call and we'll work through it with you.

Sources

This article is general commentary on announced and proposed measures, not advice. Founders' Relief in particular is subject to consultation and may change, and your own position depends on your facts, so take advice before acting.