At the 2026 budget, the government announced the introduction of a new capital gains tax (CGT) relief – founders’ relief – and published a technical consultation on its design. The purpose of the relief is to recognise through the tax system the contributions of “founders and significant early investors who have built companies with a proven record of growth and innovation”. The government hopes that the new relief will “incentivise more high-growth and innovative companies to start, scale and stay in the UK”. 

The legislation providing for founders’ relief is yet to be enacted. The following analysis explains how the relief is expected to work based on the information in the government’s consultation document.

What is founders’ relief? 

Where a successful claim for founders’ relief is made, gains made by individuals on a qualifying disposal of shares on or after 6 April 2027 are subject to CGT at the reduced rate 10%. In comparison, gains that are eligible for business asset disposal relief (BADR) are currently taxed at 18%. 

There will be a lifetime limit of £10m, but this will be reduced by any BADR or investors’ relief claims that the individual makes from 6 April 2027 onwards. BADR is also subject to a lifetime limit of £1m (reducing to £500,000 for disposal made on or after 6 April 2027, as announced at the  budget 2026).  

There are a number of conditions that the individual making the disposal (the shareholder), and the company whose shares are being disposed of must meet in order for the shareholder to be eligible for founders’ relief. 

Shareholder conditions 

The shareholder must meet all of the following conditions:

• They held at least 25% of the company’s ordinary share capital, at the point that the trade for which the company was formed commenced, or when preparations for that trade started. The shareholder must also hold the same proportion of voting rights, rights to distributions and rights on a winding up.
• They held the shares or securities for at least five years prior to disposal.
• They have been UK resident under the statutory residence test for at least five continuous years prior to the disposal. 

When considering the 25% test, shares in the holding company of a trading group that meets the conditions will be eligible.  

The shareholder does not have to have held their entire shareholding for five years, so any shares or securities in the company will be eligible for relief, as long as the above conditions have been met. 

Company (or group) conditions 

The company (or group) whose shares have been disposed of must meet all of the following conditions: 

• It is within the scope of corporation tax (whether as a UK resident company or having a UK permanent establishment that it trades through) with a business that has had a “substantial UK presence” for the five accounting periods prior to disposal. 
• It is a trading company or the holding company of a trading group. It must not have substantial non-trading activities or carry on excluded activities (as defined for the enterprise investment scheme).
• It continued to carry on the trade it was established for when the founder’s shares were issued, with no major change in the nature of the trade.
• It had turnover of at least £10m in the accounting period prior to the share disposal.
• It employed at least 15 full-time employees (FTE) in the accounting period prior to the share disposal. A FTE is an employee that works at least 35 hours per week and is paid at least the UK national minimum wage. Directors, contract workers and agency workers will not count towards this number. 

In addition, at least two out of the following three growth and innovation conditions must be met: 

• Growth in turnover:
  • there must have been annual average compounded growth in the company’s turnover of 25% in three consecutive accounting periods in the ten years before the disposal; and
  • the company must have had turnover of at least £10m in the accounting period before the first of the three periods, above.
• Growth in headcount:
• there must have been annual average compounded growth in the company’s number of FTE of 25% in three consecutive accounting periods in the ten years before the disposal; and
• the company must have had at least 15 FTE in the accounting period before the first of the three periods above.
• Innovation: In its accounting periods ending in the three years prior to the share disposal, the company must have incurred qualifying research and development (R&D) expenditure of at least £1.5m (this appears to be a total over the three years, rather than an amount per year) on which it successfully claimed R&D tax relief. 

If HMRC later denies an R&D tax relief claim, the claimant will not be eligible for founders’ relief (unless the first two conditions are both met) and would need to pay the additional CGT that becomes due. The consultation acknowledges that this could create issues relating to taxpayer confidentiality. 

The relief is available for shareholdings in both listed and unlisted companies. 

How relief will be given 

As for BADR, a shareholder will need to claim founders’ relief in their tax return and will need to provide details of which accounting periods the company has met the eligibility tests for. 

Shareholders may be given the right to request information from the company that they reasonably require, to determine if they are eligible for founders’ relief. 

There will be targeted anti-avoidance rules, including for company reorganisations aimed at bringing shares into scope.

Consultation process 

The consultation closes on 30 November 2026. ICAEW will be responding and if you have any comments that you would like to provide, please contact Katherine Ford by 12 November 2026. 

Further information 

• Capital Gains Tax — introduction of a new founders relief - GOV.UK
• Capital Gains Tax statistics - GOV.UK