Autumn Budget 2026

He has delivered a 10% Founders’ Relief on up to £10 million of gains. The small print shows it is built for fast-growing scale-ups. For most owner-managers, the change that matters is the other one: Business Asset Disposal Relief’s lifetime limit is being halved.

A prize for the few

Starting with what did not happen. Capital gains tax rates remain at 18% and 24%. That alone removes the reason to rush a sale, and it is welcome.

The headline measure is Founders’ Relief. From 6 April 2027, founders and early investors in “high-growth, innovative” companies will pay 10% capital gains tax on up to £10 million of lifetime gains. The Treasury says this competes with the best offers internationally, and for the companies it reaches, it does.

The technical consultation published alongside the Budget, however, sets demanding tests: a 25% stake when trading began, a five-year holding period, at least £10 million of turnover, 15 full-time staff, and either rapid growth or significant R&D. I suspect that many of Britain’s founders will never meet them. From the same date, the BADR lifetime limit falls from £1 million to £500,000. The government says three in four claimants will be unaffected. The quarter who are affected are often the owners of solid, profitable businesses that will never be described as high-growth.

Founders’ Relief is a bold and welcome move for the companies that will become Britain’s next big success stories. But it sits at the top of the pyramid. For the owner of a well-run £5 million business, this Budget makes selling up more expensive, not less.

Who will actually qualify?

The consultation proposes three layers of tests, all of which must be met at the point of sale.

Table 1: Proposed Founders’ Relief conditions

Source: HM Treasury, CGT Founders’ Relief: technical consultation, October 2026.

Twenty-five per cent compound growth over three years means roughly doubling, for example from £10 million of turnover to about £19.5 million, or from 15 staff to about 30. This is a relief for genuine scale-ups.

It is worth testing your own business against a few common situations. Five co-founders who each held 20% at launch will not qualify, however large the exit. Nor will a chief executive brought in during year two with a significant stake, because the 25% test looks at the position when trading began. A profitable services firm turning over £15 million and growing at 8% a year without R&D claims fails the growth tests. A deep-tech company spending £5 million a year on R&D but with £2 million of revenue passes the innovation test and fails the turnover threshold. And a founder who moved to the UK three years ago, or who leaves before selling, fails the residence condition.

The small print

The £10 million cap is shared: it will be reduced by any BADR or Investors’ Relief claimed from 6 April 2027. Claims will need a prescribed form with the self-assessment return, and founders will get a statutory right to obtain evidence from the company, which will matter to minority shareholders who have left.

More striking, if HMRC later overturns the company’s R&D claim, a founder who relied on the innovation test potentially loses the relief and pays interest. A founder’s personal tax bill will, for the first time, depend on the quality of the company’s R&D claims. The consultation closes on 30 November 2026, with legislation to follow in Finance Bill 2026-27.

What it is worth

For a higher-rate taxpayer who qualifies and has not used either relief before, the numbers look like this.

Table 2: Capital gains tax on a qualifying sale

Illustrative figures for a higher-rate taxpayer with no previous claims, assuming all conditions are met. Gains above the relevant relief limit are taxed at 24%.

On a £5 million exit, qualifying is worth £670,000. That creates a sharp cliff edge: a company with £9.9 million of turnover, or a founder who held 24%, gets nothing extra. BADR, meanwhile, will be worth no more than £30,000 over a lifetime.

Share schemes

For scale-ups, the most practically useful change is to the Company Share Option Plan. From 6 April 2027, CSOP is renamed EMI2 and its individual limit doubles from £60,000 to £120,000. It will no longer share a limit with EMI, so an employee can hold £250,000 of EMI options and £120,000 of

EMI2 options, £370,000 in total. EMI2 options will also be exercisable for up to 15 years, in line with EMI.
EMI2 has no size limit, which makes it the natural next step for companies that outgrow EMI’s 500-employee and £120 million asset tests, or that operate in excluded sectors. It can also top up senior hires who have used their EMI allowance. The underlying legislation does not change, so existing CSOPs need no restructuring.

EMI itself gets some helpful changes from April 2027. Grants will no longer need to be notified separately, the window to exercise after a disqualifying event is being extended, companies moving into employee ownership will keep their EMI schemes, and shares set aside for employees can be held for 15 years without falling foul of the disguised remuneration rules.

There is a catch. EMI shares can qualify for BADR without meeting the usual 5% shareholding test, while employees will rarely meet the 25% test for Founders’ Relief. Employees with large EMI gains are therefore among those hit by the BADR cut: a senior engineer with a £1 million gain will pay £30,000 more on a sale after April 2027. EMI2 is the reform scale-ups have been asking for, but the same Budget makes those employees’ gains more expensive when the company is sold.

Starting up and raising money

The trading allowance triples from £1,000 to £3,000 from 6 April 2027, so people can test a business idea alongside a job without a tax bill. A Young Entrepreneurs Allowance will be piloted shortly, giving successful applicants help with living costs in their first year, although the amounts and eligibility have not yet been published. Two non-tax measures are also worth noting: legislation to stop non-compete clauses preventing start-ups from hiring out of larger firms, with a full position due in early 2027, and a wider High Potential Individual visa covering graduates of the top 150 universities in the world.

There is no change to the EIS or SEIS limits. Instead the government has fixed some long-standing traps for share issues from 6 April 2027. Breaching an EIS limit will no longer wipe out all relief, SEIS and EIS or VCT money can be raised on the same day, and one investor paying late will no longer put everyone else’s relief at risk. HMRC will also act against fee arrangements that divert an undue share of investors’ money away from the business, and will look at improving Advance Assurance. Calls to extend the company age limits, and the six-month longstop for advance subscription agreements, were rejected. The government also says it is watching EIS money being spent outside the UK, which could become a future condition.

SEIS, unchanged since 2023, has been passed over again. The first and riskiest money a founder raises is still capped at £250,000 per company and £200,000 per investor.

The reinvestment relief trailed in the press did not materialise. The government considered it too complex and will instead promote the existing EIS deferral relief, which lets a founder defer a gain by investing up to £5 million a year in a connected EIS company, although without the income tax relief or CGT exemption available to outside investors.

On growth capital, the British Business Bank’s capacity rises by £5 billion, including £1.4 billion for equity funds and £450 million for a new venture debt product. Non-dilutive finance on that scale is something UK scale-ups have long lacked.

There is nothing for employee ownership trusts beyond the EMI change, so last year’s halving of the CGT relief on a sale to an EOT stands. Corporation tax stays at 25% with full expensing intact, but the main writing down allowance falls from 18% to 12% from April 2027, while the main first-year allowance rises from 40% to 50% from January 2027. R&D claimants will no longer need to file a claim notification form from 1 April 2027.

In short, the Chancellor has thought about the founder at the kitchen table and the founder at the exit. The founder in the middle, raising a Series A and hiring their fiftieth employee, gets tidier rules rather than new help.

Employing people

From 1 April 2027 the National Living Wage rises by 3.9% to £13.21 an hour, and the rate for 18 to 20 year olds rises by the same percentage to £11.27. The Treasury puts the increase for a full-time worker at £910 a year. With employer NIC at 15%, the cost to the employer is about £1,050 per head before pension contributions, or around £21,000 a year for a retail or hospitality business with 20 such staff. The smaller increase for younger workers will be welcomed by employers worried about the cost of hiring them.

There is nothing on National Insurance. Employer contributions stay at 15% on earnings above £5,000, with the threshold frozen until 2031. The government’s own response to its call for evidence acknowledges that founders see employer NIC as a brake on hiring, then points to the £10,500 Employment Allowance and the existing reliefs for under-21s and apprentices. For a Chancellor talking about breathing space, this was the obvious place to offer some.

Consumer-facing businesses in England do get help with business rates. From April 2027 the Small Business Rates Relief thresholds for retail, hospitality and leisure rise to £18,000 for full relief (from £12,000) and £21,000 for tapered relief (from £15,000), taking around 70,000 more high street businesses out of rates altogether. Bills for these sectors are also frozen in real terms for 2027-28 and 2028-29.

Taking money out of the business

The quietest document published today may matter most to owner-managers. HMRC’s response to its consultation on modernising the taxation of distributions and repayments of capital confirms that the government will go ahead with all seven proposals as a package. Draft legislation will follow in a technical consultation during 2027, and the new rules will apply from April 2028. They will not be retrospective.

The main targets are familiar planning routes. Inserting a new holding company to create “good capital” and then returning it at capital gains rates will no longer work, because the capital that can be repaid after a share reorganisation will be frozen at the amount shareholders originally subscribed. Listed companies are excluded. Capital reduction demergers lose their appeal, although the statutory demerger relief will be widened, including in some cases where a division is demerged ahead of a sale.

Company buybacks will be subject to mechanical tests in place of the current requirement that the purchase benefits the trade. The government has listened on some points: the 5% minimum holding is under review, the requirement to have been an employee for the two years before the sale will be relaxed, and a departing founder may be able to stay on as a consultant. It has also promised to protect genuine family succession and not to undermine the position of EMI, CSOP, EIS and SEIS shareholders. Alongside this, the transactions in securities rules will be rewritten, distributions from overseas companies will be taxed in the same way as UK ones, and a temporary charge will apply to loans from closely held overseas companies.

Anyone planning a holding company reorganisation, a capital reduction or an exit by way of buyback therefore has roughly 17 months under the current rules, and the existing anti-avoidance rules continue to apply in the meantime.

Separately, tax on savings and property income rises by a further two percentage points from April 2027, on top of the two points already legislated. Founders who hold property or significant cash personally will feel it. The cash ISA limit stays at £20,000.

Founders’ Relief opens a front door for a few. The distributions reforms close a back door for many.

Our view

So, was it a Budget for bloody-minded entrepreneurs? For the bloody-minded few who build a genuine scale-up, yes. Founders’ Relief, EMI2 and venture debt from the British Business Bank add up to a credible offer to the next generation of high-growth companies, and keeping CGT rates where they are was the right call.

For everyone else, the picture is thinner. BADR is halved, payroll costs rise again, SEIS is ignored, and the distributions reforms will make taking value out of an owner-managed company more expensive from 2028. The government’s reasoning is telling. Its response notes the view that BADR comes too late to influence decisions, concludes that the relief does not help owners establish or grow a business, and redirects support to the start-up and scale-up phases. That is coherent for venture-backed growth. It is cold comfort for the family company or the professional services firm that grows steadily for twenty years.

And there is still no map. The government’s own summary of responses records founders asking for exactly what big business was given in 2024: a roadmap offering certainty on capital gains tax and investment reliefs for the rest of this Parliament. Today’s response does not provide one. A Roadmap for Entrepreneurs, fixing BADR, Founders’ Relief, the share schemes and the venture capital schemes until the next election, would cost the Treasury nothing and be worth a great deal.

What founders should do now

Don’t rush to sell. CGT rates are unchanged and both relief changes start on 6 April 2027. If your gain is above £500,000 and you may qualify for Founders’ Relief, waiting could be worth far more than BADR.

Test your company against the Founders’ Relief conditions now, and respond to the consultation by 30 November 2026 if the design excludes you unfairly.

If you will not qualify, model the BADR change. On gains above £500,000, completing before 6 April 2027 could save up to £30,000, but check for any anti-forestalling rules first.

Plan EMI and EMI2 together for April 2027, particularly for senior hires.

Review any buyback, capital reduction or succession plans before the distributions rules change in April 2028.

Make sure the company’s R&D claims are robust. They may now affect founders’ own tax bills.

Budget for the April 2027 payroll increase: the higher National Living Wage, 15% employer NIC and frozen thresholds.

For a summary of every change affecting entrepreneurs since October 2024, see our companion piece, ‘Where are we now? The entrepreneur’s tax map after three Budgets’.

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