---
title: "Founders' Relief is a 10% rate for the founder who stays"
url: https://www.boruconsulting.com/blog/founders-relief-uk-conditions
category: "Taxation Strategy"
author: "Ruairi Laughlin-McCann"
published: 2026-11-09
modified: 2026-11-09
---

# Founders' Relief is a 10% rate for the founder who stays

> Founders' Relief offers 10% capital gains tax on up to £10 million from April 2027, but only for a founder who held 25% when trading began, has five continuous years of UK residence and sells a company that has grown fast. Most founders will not qualify, and a founder who leaves the UK cannot.

## Key Takeaways
- Founders' Relief is a proposed 10% rate of capital gains tax on up to £10 million of lifetime gains, for qualifying disposals of shares on or after 6 April 2027. It was announced at the Budget on 28 October 2026, the technical consultation closes on 30 November 2026, and the conditions may still change before the legislation is published.
- The founder must have held at least 25% of the ordinary share capital, with matching votes and economic rights, when the company's trade or preparation for it began, must have held shares for five years, and must have been UK resident under the Statutory Residence Test for five continuous tax years before the sale.
- The company must be within UK corporation tax with a substantial UK presence for five accounting periods, a trading company still carrying on its original trade, with turnover of at least £10 million and 15 qualifying full-time employees, and it must pass two of three tests: 25% compound turnover growth, 25% compound headcount growth, or £1.5 million of claimed R&D expenditure.
- It is deliberately narrow. The government expects about 600 individuals in 400 businesses to claim each year, against roughly 61,000 claims for Business Asset Disposal Relief and Investors' Relief in 2024/25. For everyone else, BADR continues at 18%, with its lifetime limit falling from £1 million to £500,000 from 6 April 2027.
- The residence condition is the one that decides it for internationally mobile founders. A founder who becomes non-resident cannot meet five continuous years of UK residence at the point of sale, and a founder who re-heads the company under a non-UK holding company outside UK corporation tax appears to fail the company test as published.

## A headline rate for a small group

The headline of Founders' Relief is familiar to anyone who sold a company before 2020: a 10% rate of capital gains tax on up to £10 million of lifetime gains. That was the old Entrepreneurs' Relief, and the new relief borrows its numbers. It does not borrow its reach. Entrepreneurs' Relief was a relief for business owners. Founders' Relief, as proposed, is a relief for the founders of the small number of UK companies that have already become large, fast-growing employers.

The government is candid about this. Its own impact note estimates that around 600 individuals in around 400 businesses will be eligible each year. In 2024/25, by comparison, about 61,000 individuals claimed Business Asset Disposal Relief or Investors' Relief. The new relief is not a replacement for the old one. It is a reward, designed for a profile, and most founders will not match the profile.

That makes the useful question narrower than "how much will I save". It is whether you, and your company, can meet every condition on the day you sell, and whether anything you are planning between now and then, including where you live, will break one of them. This note sets out the conditions as published, the arithmetic against the alternatives, and the points at which a founder who is internationally mobile, or whose group is, falls out of the relief.

## Where the relief stands today

The relief was announced at the Budget on 28 October 2026, alongside a technical consultation on its design. The key dates are these.

- **30 November 2026.** The consultation closes at 11.59 pm. Responses can still shape the conditions, including the definitions of a qualifying employee and of a change of trade.
- **Finance Bill 2026-27.** The government intends to legislate by amending the Finance Bill, so the final wording will not be known until those amendments are published.
- **6 April 2027.** The relief applies to qualifying disposals made on or after this date. From the same day, the Business Asset Disposal Relief lifetime limit falls from £1 million to £500,000.

Everything in this note is based on the published policy paper, the consultation and the professional commentary on them. It describes a proposal. The conditions may change, and no one should sell, restructure or move on the strength of the current text alone.

## The founder conditions

Three conditions apply to the individual claiming. All three must be met.

**A 25% stake from the start.** The individual must have held at least 25% of the company's ordinary share capital at the point when the trade for which the company was formed commenced, or when preparation for that trade commenced. The voting rights, the rights to distributions and the rights on a winding up must match that proportion. The test can be met through the holding company of a trading group. It is a test of the founding moment, so a stake acquired later, however large, does not satisfy it.

**Five years of holding.** The individual must have held shares or securities in the company for at least five tax years before the disposal. Once the founder qualifies, the relief is not limited to the original shares, so later acquisitions, including shares from a management incentive plan, can be sold within it.

**Five continuous years of UK residence.** The individual must have been UK resident under the Statutory Residence Test in Schedule 45 to the Finance Act 2013 for at least five continuous tax years before the disposal. This is a new kind of condition for a capital gains relief. Business Asset Disposal Relief has no residence test. The mechanics of the Statutory Residence Test itself are set out in the note on [the UK statutory residence test for high-net-worth individuals](https://www.boruconsulting.com/blog/uk-statutory-residence-test-hnwi).

There is no requirement to be an officer or employee. A passive early investor who held 25% when trading began can qualify, which Business Asset Disposal Relief would not allow.

## The company conditions

The company whose shares are sold must meet a set of scale, presence and character conditions, and then two of three growth and innovation tests.

**Presence and character.**

- It must be within the scope of UK corporation tax, either as a UK-resident company or by carrying on business in the UK through a permanent establishment, and have had a substantial UK presence for the five accounting periods before the disposal.
- It must be a trading company, or the holding company of a trading group, without substantial non-trading activities and without the activities excluded from the Enterprise Investment Scheme by section 192 of the Income Tax Act 2007 (ITA 2007), such as dealing in land, financial services and property development.
- It must still carry on the new trade it was established for when the founder's shares were issued, with no major change in the nature of that trade.

**Scale in the year before sale.** In the accounting period before the disposal, it must have had turnover of at least £10 million and employed at least 15 qualifying full-time employees. A qualifying employee works at least 35 hours a week and is paid at least the National Minimum Wage. Directors, contractors and agency workers do not count.

**Two of three growth and innovation tests.**

- **Turnover growth.** Average compound growth in turnover of at least 25% a year across three consecutive accounting periods within the ten years before the disposal, with turnover of at least £10 million in the period before the first of the three.
- **Headcount growth.** Average compound growth of at least 25% a year in qualifying full-time employees across three consecutive accounting periods within the same ten years, with at least 15 such employees in the period before the first of the three.
- **Innovation.** Qualifying research and development expenditure of at least £1.5 million, meeting all the conditions for an R&D tax relief claim under Part 13 of the Corporation Tax Act 2009 (CTA 2009) and actually claimed, for an accounting period or periods ending within the three years before the disposal.

Companies may be listed or unlisted, and more than one individual can claim in respect of the same company.

The growth tests are demanding in a way that is easy to underestimate. A company that reaches £10 million of turnover and then grows at 25% a year for three years has moved from £10 million to about £19.5 million. A company that grew steadily and profitably, without venture-style acceleration, may pass neither growth test. It then cannot qualify however much it spends on research, because the R&D test is only one of the two passes it needs.

## The arithmetic against the alternatives

The relief is worth having when it is available. The comparison below assumes a founder with a gain of £8 million on the sale of a company, a disposal after 6 April 2027, no previous claims, and the higher main rate of capital gains tax of 24%.

| Route | Tax on an £8 million gain | How it is calculated |
| --- | --- | --- |
| No relief | £1,920,000 | 24% on £8 million |
| Business Asset Disposal Relief from 6 April 2027 | £1,890,000 | 18% on £500,000, then 24% on £7.5 million |
| Founders' Relief, if every condition is met | £800,000 | 10% on £8 million, within the £10 million limit |

The difference between Founders' Relief and the next best route is over £1 million on this gain. The difference between Business Asset Disposal Relief and no relief at all, from April 2027, is £30,000. That is the practical meaning of the change. For founders who qualify, the new relief is significant. For founders who do not, the main relief they have relied on has shrunk to the point where it barely changes the bill.

The main rates in the table are the individual rates in section 1H of the Taxation of Chargeable Gains Act 1992 (TCGA 1992). Business Asset Disposal Relief sits in section 169H onwards of the same Act, with the share conditions in section 169I and the lifetime limit in section 169N. Investors' Relief follows from section 169VA.

Two interactions matter. The first is that the £10 million Founders' Relief limit is reduced by any Business Asset Disposal Relief and Investors' Relief claimed from 6 April 2027. A founder who claims BADR on a smaller sale first uses up part of the larger allowance.

The second is timing. Business Asset Disposal Relief is still available at 18% on up to £1 million until 5 April 2027, so a sale already in negotiation needs its completion date modelled carefully, with the anti-forestalling rules in mind, as set out in the note on [the 18% BADR rate and anti-forestalling](https://www.boruconsulting.com/blog/badr-uk-18-percent-anti-forestalling). The wider Budget measures for owners are set out in the note on [the Autumn Budget for business owners and founders](https://www.boruconsulting.com/blog/autumn-budget-2026-business-owners-founders).

## How the two reliefs compare

Founders' Relief is narrower than Business Asset Disposal Relief on every condition except the rate, the limit and the office requirement. The definition of a trading company for BADR is the one in section 165A TCGA 1992; whether Founders' Relief adopts it unchanged is for the draft legislation.

| Condition | Founders' Relief, as proposed | Business Asset Disposal Relief |
| --- | --- | --- |
| Rate | 10% | 18% |
| Lifetime limit | £10 million, reduced by BADR and Investors' Relief claimed from 6 April 2027 | £1 million, falling to £500,000 from 6 April 2027 |
| Shareholding | 25% when the trade, or preparation for it, began | 5% throughout the qualifying period, with an EMI exception |
| Holding period | Five years | Two years |
| Office or employment | Not required | Officer or employee throughout the two years |
| Residence | Five continuous tax years of UK residence before the sale | No residence condition |
| Company | UK corporation tax scope, substantial UK presence, original trade, £10 million turnover, 15 full-time employees, two of three growth tests | Trading company or holding company of a trading group |
| In force | Disposals on or after 6 April 2027, subject to legislation | Now |

## The founder who leaves the UK

The residence condition changes the calculation for any founder who is considering a move abroad, and it is the point most coverage of the relief passes over.

**A founder who becomes non-resident cannot claim.** The condition requires five continuous tax years of UK residence before the disposal. A founder who moves to Dubai, Dublin or anywhere else and then sells is not UK resident at the point of sale, and on the published design is outside the relief altogether.

**For a permanent leaver, the relief is usually beside the point.** A founder who becomes genuinely non-resident and stays non-resident is generally outside UK capital gains tax on shares in a trading company that is not UK property-rich under section 1A and Schedule 1A TCGA 1992. The UAE has no personal capital gains tax. For that founder, the comparison is not 10% against 24%. It is whether to sell as a UK resident at 10%, if they qualify, or to leave first and sell later, with all the personal and residence consequences that leaving involves, examined in the note on [moving to Dubai from the UK](https://www.boruconsulting.com/blog/moving-to-dubai-from-uk-tax-residence).

**The founder who leaves and returns is in the worst position.** The temporary non-residence rules in section 10A TCGA 1992 and Part 4 of Schedule 45 to the Finance Act 2013 tax gains realised during a period of non-residence of five years or less on assets held before departure, in the year the individual returns, where the individual had been UK resident for four of the seven tax years before leaving. A founder who leaves, sells while abroad and comes back within five years can be taxed on the gain on return, and on the published design would not meet the five continuous years of UK residence before the disposal that Founders' Relief requires. The mechanics are set out in the note on [temporary non-residence and the capital gains clawback](https://www.boruconsulting.com/blog/uk-temporary-non-residence-cgt-clawback).

**The clock restarts on return.** A founder who has spent even one tax year non-resident needs five continuous years of residence after returning before a sale can qualify. How departure and arrival years are counted is one of the details to read closely when the legislation is published.

The practical consequence is that a founder who expects to qualify, and who is also thinking about relocating, now has a decision with a clear price on both sides. Staying until the sale may be worth a 10% rate. Leaving before it makes the relief unavailable, whatever the company's growth.

## The group that has moved its top company

A second corridor issue sits on the company side. Some UK groups have been, or are being, re-headed under a holding company outside the UK, often in the UAE, the route set out in the note on [putting a UAE holding company over a UK company](https://www.boruconsulting.com/blog/uae-holding-company-over-uk-company).

The published conditions require the company to be within the scope of UK corporation tax and to have had a substantial UK presence for five accounting periods. The founder's 25% test can be met through the holding company of a trading group. A founder who then sells shares in a UAE holding company that is genuinely managed in the UAE, and not within UK corporation tax, appears on the published wording to fail the company condition, even though the UK operating company would pass it.

The consultation does not settle how a new holding company is treated. Professional commentary has noted that it is unclear whether a founder who exchanges shares in the original company for shares in a new top company keeps the original 25% and holding-period history, as the normal share reorganisation rules in section 127 and section 135 TCGA 1992 would suggest, and how the company tests then apply to the new top company. The government has also said it will include targeted anti-avoidance rules aimed at reorganisations designed to bring shares within the relief. A founder considering a share exchange, in either direction, should not complete it on an assumption about how the final legislation will treat it.

## The conditions that can fail late

Three of the company conditions can fail after the founder thinks they are secure, and each turns the company's records into a founder's personal tax risk.

**The R&D claim.** Where the innovation test is one of the two tests relied on, the relief depends on the company's R&D claims standing. If HMRC later rejects a claim, the founder can lose the relief and owe the additional tax with interest. The consultation acknowledges the confidentiality problem this creates, since the founder's tax position depends on information about the company's own tax affairs.

**The change of trade.** The company must still carry on the trade it was formed for, with no major change in its nature. Start-ups that pivoted from their original product are the obvious risk. The closest existing model, the loss-restriction rule in section 673 of the Corporation Tax Act 2010, counts a major change in products, services, customers or markets, and section 673(4) applies it even where the change came about gradually.

**The headcount.** Only employees working at least 35 hours a week and paid at least the National Minimum Wage count. A company that has grown through contractors, agency staff or part-time teams may have the people but not the qualifying employees.

The consultation proposes that a shareholder will be able to request from the company the information reasonably needed to establish eligibility. The founder will claim in their Self Assessment return, with a supplementary form showing the accounting periods in which the company met the tests.

## What to do before the consultation closes

The work that matters can be done now, before the legislation is published, and most of it is checking records rather than changing anything.

1. **Test the founder conditions now.** Check the shareholding at commencement of trade, the matching rights and the holding period against the company's statutory books, not memory.

2. **Map the residence years.** List every tax year of UK residence in the last five and the next five, applying Schedule 45 to the Finance Act 2013. Any planned move abroad before a sale needs to be weighed against the relief directly.

3. **Run the company tests on the actual numbers.** Turnover, qualifying employees and R&D claims, period by period, for the last ten years and the projected next three.

4. **Model a sale in either tax year.** Compare completion before 6 April 2027, using the current £1 million BADR limit at 18%, with completion after it, under Founders' Relief if available and the £500,000 BADR limit if not.

5. **Leave the structure alone until the law is published.** Share exchanges, new holding companies and reorganisations should wait for the draft legislation and its anti-avoidance rules.

6. **Respond to the consultation if it affects you.** It closes on 30 November 2026. The definitions of qualifying employees, change of trade and the treatment of holding companies are all open.

## Frequently asked questions

### What is Founders' Relief?

Founders' Relief is a proposed new UK capital gains tax relief, announced at the Budget on 28 October 2026, giving a 10% rate on up to £10 million of lifetime gains on the sale of shares by qualifying founders and early investors in high-growth, innovative companies. It applies to qualifying disposals on or after 6 April 2027 and is subject to a technical consultation closing on 30 November 2026 and to legislation through amendments to the Finance Bill 2026-27.

### Who qualifies for Founders' Relief?

An individual who held at least 25% of the company's ordinary share capital, with matching rights, when its trade or preparation for it began, has held shares for five years, and has been UK resident for five continuous tax years before the sale. The company must be within UK corporation tax with a substantial UK presence, be trading in its original trade, have at least £10 million of turnover and 15 qualifying full-time employees, and pass two of three growth and R&D tests. The government expects about 600 individuals a year to qualify.

### What are the growth tests for Founders' Relief?

The company must pass two of three. Turnover growth requires average compound growth of 25% a year across three consecutive accounting periods within the ten years before sale, from a base of at least £10 million. Headcount growth requires 25% average compound growth in qualifying full-time employees across three consecutive periods, from a base of at least 15. The innovation test requires at least £1.5 million of qualifying R&D expenditure claimed for periods ending in the three years before sale.

### Does Founders' Relief replace Business Asset Disposal Relief?

No. Business Asset Disposal Relief continues alongside it at 18%, but its lifetime limit falls from £1 million to £500,000 for disposals on or after 6 April 2027. Business Asset Disposal Relief requires a 5% shareholding held for two years and an office or employment, with no residence condition. Claims to it, and to Investors' Relief, made from 6 April 2027 reduce the £10 million Founders' Relief limit.

### Can I claim Founders' Relief if I move abroad before selling?

On the published design, no. The relief requires the founder to have been UK resident under the Statutory Residence Test for at least five continuous tax years before the disposal, so a founder who is non-resident when they sell does not qualify. A founder who leaves permanently is generally outside UK capital gains tax on trading company shares anyway, while a founder who returns within five years can be taxed on return under the temporary non-residence rules without access to the 10% rate.

### Does Founders' Relief apply if the company has a holding company abroad?

It may not. The company whose shares are sold must be within UK corporation tax, by UK residence or a UK permanent establishment, with a substantial UK presence for five accounting periods. A non-UK holding company genuinely managed abroad would appear to fail that test on the published wording, even if its UK subsidiary passes. The consultation does not yet say how share exchanges into a new holding company will be treated, and anti-avoidance rules are proposed.

### When does Founders' Relief start?

It applies to qualifying disposals of shares made on or after 6 April 2027. The consultation on its design closes on 30 November 2026, and the government intends to legislate through amendments to the Finance Bill 2026-27, so the final conditions will be known only when those amendments are published. A sale completing before 6 April 2027 cannot use it.

### How much tax does Founders' Relief save?

On an £8 million gain after 6 April 2027, a qualifying founder would pay £800,000 at 10%, against £1,890,000 with Business Asset Disposal Relief on the first £500,000 and the 24% rate on the rest, and £1,920,000 with no relief. The saving is therefore over £1 million on a gain of that size, but only where every founder and company condition is met on the day of sale.

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**Critical advisory.** Founders' Relief will be valuable to a small number of founders and irrelevant to most, and the line between the two is drawn by conditions that can fail for reasons that have nothing to do with the business's success: a 25% stake that was 24% on day one, a year spent abroad, a holding company that moved, an R&D claim that does not survive enquiry. In my experience the founders who lose reliefs like this are rarely surprised by the rate.

They are surprised by a condition they assumed they met. We test the founder and company conditions against the actual records, map residence across the UK and the UAE, and model a sale in either tax year before anyone signs heads of terms. If you are planning an exit, a move abroad, or both, speak to us through our [services page](https://www.boruconsulting.com/services) before 30 November, while the conditions can still be argued. 

This article is general information based on a proposal and not legal or tax advice; your own position should be confirmed against your specific facts and the final legislation before you act.

## Glossary concepts in this article
- [Business Asset Disposal Relief (BADR)](https://www.boruconsulting.com/glossary/business-asset-disposal-relief): A UK relief that reduces the Capital Gains Tax rate on the sale of a qualifying trading business or shares, up to a lifetime limit of £1 million of gains.
- [Holding Company](https://www.boruconsulting.com/glossary/holding-company): A company whose main purpose is to own shares in other companies rather than trade in its own right.
- [Investors’ Relief](https://www.boruconsulting.com/glossary/investors-relief): A UK Capital Gains Tax relief for outside investors who subscribe for new shares in an unlisted trading company and hold them for at least three years, up to a lifetime limit of £1 million of gains.
- [Statutory Residence Test (SRT)](https://www.boruconsulting.com/glossary/statutory-residence-test): The UK framework for deciding whether an individual is tax resident in a given year, based on days spent in the UK combined with connecting factors such as family, work, and available accommodation.
- [Share Capital](https://www.boruconsulting.com/glossary/share-capital): The shares a company issues and their nominal value, set at incorporation and changed only by formal steps.
- [Temporary Non-Residence](https://www.boruconsulting.com/glossary/temporary-non-residence): A UK anti-avoidance rule that taxes certain income and gains realised during a short period of non-residence once the person resumes UK residence.

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Source: https://www.boruconsulting.com/blog/founders-relief-uk-conditions