Consultation indicates Founders’ Relief technicalities

The government has published a technical consultation on its new Founders’ Relief. The consultation itself provides an overview of the proposed qualifying conditions for it, including individual and company requirements and what must be satisfied. HMRC’s own figures, however, show that the strict conditions mean only about 600 individuals will be eligible to apply each year.

The Autumn Budget 2026 unveiled plans for a new Founders' Relief, offering a reduced 10% Capital Gains Tax (CGT) rate on qualifying business disposals from 6 April 2027. The relief is aimed at entrepreneurs who establish and scale innovative UK businesses, with a lifetime gains limit of £10 million per individual.

Although the legislation is yet to be finalised, the consultation points to the direction of government thinking.

To qualify, it is proposed that founders must have held at least 25% of the company's shares, voting rights and economic interests when trading began, retained their shares for at least five years and been UK resident for the five years preceding disposal. The relief will apply to all qualifying shares held by an eligible founder, including those acquired after the company was established.

It also means that a company may have more than one ‘founder’ who can claim the relief. The relief is claimed by the individual through their Self Assessment tax return.

Eligible companies must be subject to UK Corporation Tax, maintain a substantial UK presence and continue the trade for which they were founded. They must also have reached a significant scale, generating annual turnover of at least £10 million and employing at least 15 qualifying full-time staff before the disposal.

In addition, companies will need to meet at least two of three growth and innovation tests.

These include achieving annual compound turnover growth of 25% (from a starting point of £10 million), increasing employee numbers at the same rate (from a starting number of 15), or demonstrating substantial innovation through at least £1.5 million of qualifying Research and Development (R&D) expenditure supported by R&D tax relief claims.

The relief is expected to strengthen incentives for founders to build and grow businesses in the UK, particularly in technology and other innovation-led sectors. By linking the tax break to growth, employment and R&D activity, the government hopes to target firms that make a significant contribution to the economy.

Problem flags

However, the detailed conditions may prove difficult to navigate. Founders could face substantial compliance burdens when evidencing historic growth, staffing levels and ownership positions, particularly where records date back up to a decade. Reliance on R&D tax relief claims also creates uncertainty, as a later HMRC challenge to an R&D claim could result in the loss of Founders' Relief and an additional tax charge.

To address these concerns, the government proposes giving individuals a statutory right to obtain supporting information from companies when making claims, once again increasing the administrative burden of record-keeping. The consultation runs to 30 November 2026 and can be found here: https://www.gov.uk/government/consultations/founders-relief-technical-consultation

Should you need help with CGT reliefs, R&D or company accounts, please get in contact.