UK Budget creates Founders' Relief, a 10% capital gains rate for founders of fast-growing companies

UK Chancellor John Healey used his Budget on Wednesday 28 October to announce Founders' Relief, a new Capital Gains Tax relief for founders and significant early investors in high-growth UK companies. According to the HM Treasury consultation, it will apply a 10% rate of CGT to qualifying share disposals, up to a lifetime limit of £10 million of gains per person, for disposals made on or after 6 April 2027.

The same Budget renames the Company Share Option Plan as EMI2 and doubles its individual limit, triples the tax-free trading allowance to £3,000 and adds new support for young and female founders, according to the Budget speech and government guidance.

What Founders' Relief is

"When business founders take that risk, build an exceptional company, create wealth for Britain, we should recognise that success and keep those people here to invest again," Healey told Parliament, according to the published speech. The relief is aimed at people who started or invested early in companies that went on to grow, and the limit applies per individual, so more than one founder of the same company can claim.

The detail sits in a technical consultation document published on the same day. It proposes that an individual must have held at least 25% of the company's ordinary share capital when its trade began, held the shares for at least five years before the sale, and been UK resident for at least five continuous tax years. The £10 million limit will be reduced by any amounts already claimed under Business Asset Disposal Relief and Investors' Relief from 6 April 2027.

The company tests

The bar for the company is high. Under the proposals, it must be a trading company within the scope of UK Corporation Tax with a substantial UK presence, have turnover of at least £10 million and at least 15 qualifying full-time employees in the accounting period before the sale, and still be running the trade it was set up for. Excluded activities follow the Enterprise Investment Scheme rules, such as dealing in land or financial services.

On top of that, the company must pass two of three growth and innovation tests, the consultation says. One is average compound turnover growth of 25% a year over three consecutive accounting periods within the ten years before the sale. Another is 25% annual growth in full-time staff over three periods. The third is at least £1.5 million of R&D spending for which R&D tax relief was claimed in the three years before the sale. The consultation closes on 30 November 2026, and legislation is planned in the Finance Bill 2026/27.

EMI2 and other measures for startups

From 28 October, the Company Share Option Plan is known as EMI2, although it keeps the CSOP name in law, according to government guidance. From April 2027, the individual EMI2 limit doubles from £60,000 to £120,000, the interaction with EMI is removed so the two schemes work independently, and the maximum exercise period rises from 10 to 15 years. EMI itself stays available to companies with gross assets of up to £120 million and fewer than 500 full-time employees.

In his speech, Healey also tripled the trading allowance, the amount people can earn from a new venture tax-free, from £1,000 to £3,000. He announced a Young Entrepreneurs Allowance to cover a year of living costs for young founders, a scale-up programme for female founders and a doubling of British Business Bank commitments to women-led businesses and funds to £200 million. He said he would reform skilled worker visas and non-compete clauses so that people can move more easily from one successful company to the next.

The speech repeated the £20.4 billion of extra capital for the National Wealth Fund and the British Business Bank that we reported before the Budget. It added a new focus for both institutions on defence, dual-use technology and sovereign capability, with up to £5 billion of investment and lending over four years, and a British Data Centre Covenant that links grid connections to local commitments.

First reactions

Dom Hallas, executive director of the Startup Coalition, called it "the boldest action backing startups and scaleups of any government in years", according to Tech.eu. He pointed to Founders' Relief and the expansion of share options through EMI2 as "progress towards rebalancing a tax system that has misunderstood Britain's most innovative founders for too long".

What it means for founders and investors

For founders, the headline rate is attractive, but the conditions decide who benefits. A 25% stake at the start, five years of ownership and a company with £10 million of turnover plus two of three growth tests mean the relief is designed for founders of proven scale-ups, not for every exit. Because the proposed stake test looks at the holding when trading began, later dilution may not rule founders out, but advisers will want to see how holding companies and reorganisations are treated in the final rules.

For the wider European ecosystem, the Budget is a clear signal in the competition for founders. Several countries are trying to stop their best companies and founders moving to the US, and a lower tax rate on a successful exit is a direct tool for that. EMI2 also matters for later-stage companies that have outgrown EMI and want competitive share options to hire.

Investors should watch the consultation closely. The growth tests, the R&D test and the information rights between founders and companies will shape how many exits actually qualify. More on UK policy and capital is on our Europe page, and our coverage of the UK AI package shows how the government is pairing tax and industrial policy.

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