Founders Relief
One of the most eye-catching measures of the budget was the introduction of a new Founders’ Relief. From 6 April 2027, qualifying founders will be able to pay Capital Gains Tax at a reduced 10% rate on up to £10 million of qualifying lifetime gains when disposing of shares in high-growth, innovative UK companies.
However, the definition is much narrower than the name “Founders’ Relief” initially suggests. It is really aimed at founders or significant early investors in high-growth, innovative UK companies, rather than the typical owner-managed business.
To qualify, the individual must:
- Have held at least 25% of the ordinary share capital when the company’s trade, or preparations for the trade, commenced.
- Have held the shares/securities being sold for at least five years.
But the company has to be quite substantial. This is the part that significantly restricts the relief. At the time leading up to the disposal, the company must have at least £10 million turnover in the accounting period before disposal; and employ at least 15 qualifying full-time employees in that period.
The company must then meet at least two out of three:
- Turnover growth: average compound growth of at least 25% a year for three consecutive accounting periods, starting from turnover of at least £10m.
- Employee growth: average compound growth of at least 25% a year for three consecutive periods, starting with at least 15 qualifying full-time employees.
- Innovation: at least £1.5m of qualifying R&D expenditure, with R&D tax relief actually claimed, in qualifying periods ending within the three years before disposal.