Founders’ Relief 2027: Could You Qualify for 10% Capital Gains Tax?

Proposed Founders’ Relief would apply a 10% CGT rate to qualifying share or securities disposals by qualifying individuals, within £10 million of lifetime qualifying gains. It is aimed at founders and significant early investors in high-growth, innovative UK companies, not all shareholders or all business sales.

The £10 million figure is a lifetime gains limit per individual. It is not the company’s sale price, its turnover or a promised tax saving. More than one individual could claim in relation to the same company if each satisfied the conditions. Each person’s gain, rights, residence and claim history require separate assessment.

The Government proposes commencement from 6 April 2027. That does not mean an owner can assume the current consultation tests will pass into law unchanged. Transaction documents and tax decisions should reflect the final legislation and the individual circumstances when advice is given.

The proposal combines a substantial founding stake and associated rights with a five-year holding condition and five continuous tax years of UK residence. These are separate conditions; it is misleading to summarise them as owning 25% for five years.

Chapter 2 of the consultation says the individual must have held 25% of ordinary share capital, together with corresponding voting rights and rights to distributable profits and assets on winding up, when the relevant trade or preparations for that trade commenced. The consultation’s precise threshold wording and the final legislative treatment should be checked before making a boundary-based eligibility decision.

The shares or securities must have been held for at least five years before disposal. This is distinct from the residence test: UK residence under the Statutory Residence Test for at least five continuous tax years before disposal. Tax years and elapsed years are not interchangeable.

The consultation says the relief would not be restricted to shares acquired when the company started or to an original shareholding, provided the conditions are met. The founding-stake condition may be met through the holding company of a trading group. Only individuals would be able to claim. Reorganisations, later-acquired shares and share-class changes still need detailed advice.

• Establish the trade or preparation commencement point and the ordinary share capital held then.
• Check corresponding votes, profit rights and winding-up rights in the actual documents.
• Review the holding period for the relevant shares or securities.
• Review residence under the Statutory Residence Test, not simply where you currently live.

The company would need to meet UK tax, UK presence, trading, continuity, turnover and employment conditions. Individual founder status alone is insufficient.

The company must be within UK Corporation Tax: either UK-resident for Corporation Tax or carrying on business through a UK permanent establishment. The business must have a substantial UK presence for the five accounting periods before disposal. The consultation does not turn substantial UK presence into a simple invented percentage test.

It must be a trading company or holding company of a trading group without substantial non-trading or excluded trading activities. It must continue the new trade for which it was established when the founder’s shares were issued, without a major change in the nature of that trade. Other trades are proposed to be treated similarly to excluded trades.

The accounting period prior to disposal must show turnover of at least £10 million and at least 15 qualifying full-time employees. The size condition is not simply 15 full-time equivalents. A qualifying full-time employee is proposed to work at least 35 hours per week and be paid at least the UK National Minimum Wage; directors, contract workers and agency workers are excluded from this condition. Detailed counting mechanics need confirmation against final rules.

The company must currently meet at least two of three proposed tests, in addition to the individual and company conditions. One growth or innovation test alone is insufficient.

Turnover growth: annual average compound turnover growth of 25% across three consecutive accounting periods within the ten years before disposal, with at least £10 million turnover in the accounting period before the first of those three periods. Growth from a very small starting business does not, by itself, meet this proposed test.

Employee growth: annual average compound growth of at least 25% in qualifying full-time equivalent employees across three consecutive accounting periods within the ten years before disposal, starting from at least 15 full-time employees in the preceding accounting period. This growth test uses full-time equivalents, whereas the company-size condition uses qualifying full-time employees.

Research and development: at least £1.5 million of qualifying R&D expenditure for which all conditions to make an R&D tax-relief claim were met, and actual R&D tax-relief claims for that expenditure for an accounting period or periods ending within the three years before disposal. It is not simply spending described internally as research, and £1.5 million is expenditure, not the value of tax credits.

Compound annual average growth is not the same as requiring identical growth in each year. The consultation does not expressly require turnover and headcount to use the same three accounting periods, so this resource and check do not impose that extra condition. Chapter 3 also addresses shorter Corporation Tax accounting periods; unusual periods need specialist review.

• Turnover growth plus employee growth may satisfy the two-test requirement without R&D claims.
• Turnover growth plus the qualifying R&D test is another possible combination.
• Employee growth plus the qualifying R&D test is another possible combination.
• Any combination still requires the separate individual and company conditions.

Owners should check both the qualifying expenditure and the validity of the related R&D tax-relief claims. An internal innovation budget or a claim submitted without meeting all conditions does not establish alignment with the proposal.

The proposal uses the existing R&D tax-relief framework as its innovation measure. It does not provide a separate general definition covering every innovative business. A company may innovate without eligible R&D expenditure and could instead meet the two growth tests.

The consultation specifically warns that a later HMRC challenge to the company’s R&D claim could cause the individual to lose Founders’ Relief and owe additional tax and interest. That is a reason for careful specialist review of supporting evidence, not a reason to treat any recorded R&D claim as settled proof.

Much of the necessary evidence belongs to the company. The consultation discusses a possible statutory information-request right for individuals, but that is not a current guarantee of access. An owner considering an exit should establish what records exist and how advisers can obtain them without assuming proposed administrative arrangements are already law.

The proposal excludes substantial non-trading or excluded trading activities, with excluded activities aligned to those used for the Enterprise Investment Scheme (EIS). The consultation gives dealing in land, financial services and property development as examples.

This is not an exhaustive exclusion list, and importing every EIS qualification rule into Founders’ Relief would be incorrect. EIS is a separate investment relief framework; the consultation refers to its excluded activities for this purpose. Mixed activities, property interests, investment income and changes to the original trade need detailed assessment.

A company’s sector label is not a tax conclusion. A specialist should examine actual activities and the final definitions. This readiness check asks whether the owner believes the trading and excluded-activity condition is met; it does not invent a percentage of permissible non-trading activity or make a tax classification from a business description.

The proposed £10 million Founders’ Relief lifetime headroom would be reduced by amounts claimed under the BADR and Investors’ Relief limits from 6 April 2027. It should not be presented as an unrestricted additional £10 million alongside those claims.

The interaction concerns amounts of qualifying gains claimed under the relief limits, not the cash value of the tax saving. The publications use claims made from 6 April 2027 wording. The treatment of a later claim concerning an earlier disposal should be checked against the legislation rather than assuming a disposal-date shortcut.

The same gain should not be presented as simultaneously receiving both preferential rates. Your adviser should assess which relief is available, the relevant claims and remaining lifetime headroom. The readiness check flags this as a review issue; it does not request exact gains or detailed tax history, calculate personal headroom or treat any prior claim as automatically disqualifying.

No: Founders’ Relief should not be presented as a replacement for BADR. The eligibility rules are fundamentally different, and the proposed founder relief is narrower.

An established trading business may be relevant to BADR without meeting the proposed founder stake, company scale and growth tests. Conversely, a possible Founders’ Relief claim needs all its own conditions assessed. Neither relief follows from Offsell’s usual approximate £1 million to £10 million transaction focus; commercial qualification and tax qualification are separate matters.

A qualifying share disposal need not necessarily mean selling 100% of a company, but any partial disposal must be assessed against the final legislation and the individual’s circumstances. The consultation discusses qualifying disposals and later-acquired shares; it does not settle every transaction structure.

A secondary share sale pays proceeds to an existing shareholder for their shares. New investment through a share issue instead puts money into the company. A deal may combine the two. Owners should distinguish personal liquidity from company funding before discussing tax consequences.

Selling a majority while retaining a minority can preserve some future participation, but your rights and influence may change. Ask about board representation, reserved matters, information rights, dividend arrangements and future exit provisions. A retained minority is not economically the same as cash, and a second-stage exit is not guaranteed.

Earn-outs, deferred payments and rollover equity can affect risk, incentives, ownership and the tax analysis. A later disposal of retained equity needs a fresh assessment, not an assumption based on the first sale. These structures should be discussed with an experienced M&A adviser commercially and a suitably qualified tax adviser for the tax position. This resource does not recommend a structure.

An owner can gather relevant information, seek specialist advice and explore commercial sale options without making irreversible decisions. That is more useful than assuming the proposed rate is already available.

Bring together the founding shareholding documents, rights, holding records, company accounts, qualifying employment evidence and relevant R&D claim information. Keep these with your advisers; the readiness check does not ask you to upload them. Uncertainty is a legitimate answer, not a reason to guess.

Separately consider why you might sell, how much equity you want to retain, your future role and acceptable consideration risk. A trade buyer, investor or other credible acquirer may offer different structures. Buyer rationale, funding and delivery capacity matter alongside a headline price.

Offsell combines existing buyer intelligence and acquisition requirements with fresh transaction-specific buyer research and direct outreach, without publicly listing businesses. Human adviser involvement increases as credible interest, offers, Heads of Terms and transaction progression develop. If tax changes are causing you to reconsider when or how you might sell, understanding the buyer market early gives you more options. Your accountant or tax adviser should confirm the tax position.