In two Budgets, Rachel Reeves made it dearer to sell a business, to employ people and to pass a company on, while making it easier to raise money and share equity with staff. John Healey has now added his own chapter: a generous new Founders’ Relief for a small number of scale-ups, paid for partly by halving Business Asset Disposal Relief. This is the map founders are now working with.
A ledger, not a strategy
Think of the last two years as a ledger. On the debit side sits higher capital gains tax, a Business Asset Disposal Relief (BADR) rate that has nearly doubled and a lifetime limit about to halve, employer NIC at 15%, a halved relief on sales to employee ownership trusts, a cap on inheritance tax business relief and higher dividend tax. On the credit side are the largest expansion of EMI and EIS in two decades and, from April 2027, a 10% Founders’ Relief on up to £10 million of gains for the most successful founders.
Although the credits are welcome; they simply do not balance the debits for the founder who builds a business, employs people and eventually sells.
Every change at a glance
Changes affecting entrepreneurs since October 2024
| Area | Before October 2024 | Now | From April 2027 (Budget 2026) |
|---|---|---|---|
| CGT main rates | 10% / 20% | 18% / 24% | Unchanged |
| Business Asset Disposal Relief | 10%, £1m limit | 18%, £1m limit | 18%, £500,000 limit |
| Founders’ Relief | None | None | 10% on up to £10m of lifetime gains for qualifying founders of high-growth companies; limit shared with BADR and Investors’ Relief |
| Investors’ Relief | 10%, £10m limit | 18%, £1m limit | No change; claims reduce the Founders’ Relief limit |
| EOT relief on sale | 100% of gain | 50% of gain | No change |
| IHT business property relief | 100% relief, unlimited | 100% relief on first £2.5m, 50% relief above £2.5m | No change |
| EMI | 250 staff, £30m assets, £3m pool, 10 years | 500 staff, £120m assets, £6m pool, 15 years | Grant notifications removed; longer exercise window of 180 days after a disqualifying event |
| EMI2 (formerly CSOP) — NEW | £60,000 per employee, shared with EMI | £60,000 | £120,000, no longer shared with EMI (£370,000 across both); 15-year exercise period |
| EIS company limits | £5m a year, £12m lifetime. £10m and £20m respectively if a Knowledge Intensive Company (KIC) | £10m a year, £24m lifetime (£20m and £40m respectively if a KIC) | Broadly unchanged |
| SEIS | £250,000 raise, £350,000 assets | Unchanged | Broadly unchanged |
| VCT income tax relief | 30% | 20% | No change |
| Employer NIC | 13.8% above £9,100 | 15% above £5,000 | No change |
| Employment Allowance | £5,000 | £10,500 | No change |
| National Living Wage | £11.44 | £12.71 | £13.21 (18 to 20 rate £11.27) |
| Trading allowance | £1,000 | £1,000 | £3,000 |
| Dividend tax (basic / higher) | 8.75% / 33.75% | 10.75% / 35.75% | No change announced |
| Savings and property income | Standard rates | Two-point rise legislated for 2027 | A further two percentage point rise from April 2027 |
| Distributions, buybacks, capital reductions | Long-standing rules | Unchanged | Reforms confirmed from April 2028 |
| Corporation tax (main rate) | 25% | 25% | 25%; main writing down allowance 12%; first-year allowance 50% |
Measures announced at Budget 2026 are subject to consultation and legislation.
What changed on 28 October
Healey’s first Budget left capital gains tax rates untouched. The headline for founders is Founders’ Relief: from 6 April 2027, a 10% rate on up to £10 million of lifetime gains for founders and early investors who held at least 25% when trading began, have owned the shares for five years and have been UK resident for five years. The company must have at least £10 million of turnover and 15 full-time staff, and pass two of three tests on turnover growth, headcount growth and R&D. The technical consultation closes on 30 November 2026.
From the same date, the BADR lifetime limit halves to £500,000, with the rate staying at 18%. CSOP becomes EMI2, with its individual limit doubled to £120,000 and no longer shared with EMI. EMI gets some administrative relief, EIS and SEIS get technical fixes but no new limits, and the trading allowance triples to £3,000. A Young Entrepreneurs Allowance will be piloted to help with living costs in a founder’s first year.
The government also confirmed it will go ahead with its reforms to the taxation of distributions, buybacks and capital reductions from April 2028. The National Living Wage rises to £13.21 from April 2027, and retail, hospitality and leisure businesses in England get more generous small business rates relief. There was no change to employer NIC, the Employment Allowance, the 25% corporation tax rate or EOT relief.
Selling or passing on the business
Capital gains tax rose to 18% and 24% overnight on 30 October 2024. BADR moved to 14% in April 2025 and 18% in April 2026, and from 6 April 2027 its lifetime limit halves to £500,000, so the most it can ever save is £30,000. Investors’ Relief has followed the same rate path, with its limit cut from £10 million to £1 million.
Against that sits Founders’ Relief, which will tax up to £10 million of lifetime gains at 10%, but only for founders who held 25% at launch, in companies with at least £10 million of turnover, 15 full-time staff and a record of rapid growth or significant R&D. Any BADR or Investors’ Relief claimed from April 2027 counts against the same £10 million.
Take a founder with a £5 million gain. Before October 2024 the bill would have been about £900,000. Today it is around £1.14 million. From April 2027 it will be about £1.17 million with BADR alone, or £500,000 with Founders’ Relief. Rarely has the question “do I qualify?” been worth so much.
Employee ownership trusts have been squeezed twice. The 2024 Budget tightened the rules: trustees must be UK resident, the seller cannot control the trust, and there are new checks that the trust does not overpay. The 2025 Budget then halved the CGT relief with immediate effect, so half the gain on a sale to an EOT is now taxable. The tax-free employee bonus of up to £3,600 a year remains. An EOT is now a business decision with a tax benefit, rather than a tax decision with a business attached.
For inheritance tax, since 6 April 2026 full Business Property Relief applies only to the first £2.5 million of combined business and agricultural property, with 50% relief above that, an effective rate of 20%. The cap was originally set at £1 million and raised after a backlash in December 2025. AIM shares now get only 50% relief, and the option to pay in ten interest-free annual instalments has been extended to all relievable property, which matters for families without spare cash.
Rewarding your people
The November 2025 Budget delivered the biggest expansion of EMI since the scheme began. From 6 April 2026 the employee limit doubled to 500, the gross assets test quadrupled to £120 million, the company-wide option pool doubled to £6 million and options can now run for 15 years. The higher company limits also apply to existing options.
Budget 2026 then dealt with the cliff edge for companies that outgrow EMI. From 6 April 2027, CSOP is renamed EMI2, its individual limit doubles from £60,000 to £120,000 and it no longer shares a limit with EMI, so an employee can hold up to £370,000 of options across the two schemes. EMI grants will no longer need to be notified separately, and there will be a longer window to exercise after a disqualifying event.
EMI’s own £250,000 individual limit, unchanged since 2012, still has not moved. And because the value of EMI rests on the gap between income tax and capital gains tax, every rise in CGT and BADR has made the scheme a little less valuable. Employees with large EMI gains will also feel the BADR cut from April 2027.
Raising money
From 6 April 2026, a company can raise £10 million a year and £24 million in total under EIS (£20 million and £40 million for knowledge-intensive companies), with the gross assets test raised to £30 million before investment and £35 million after. Investors keep 30% income tax relief and the schemes run to 2035. For founders heading into a Series A or B, that is real headroom.
VCT income tax relief fell from 30% to 20% on the same date, which may push more money towards direct EIS rounds and EIS funds.
SEIS has now been passed over twice. Companies still face a £350,000 gross assets test and a 25-employee limit, can raise £250,000, and investors are capped at £200,000 a year, limits last raised in 2023. Budget 2026 did fix some traps from April 2027: SEIS and EIS money can be raised on the same day, one investor paying late no longer endangers everyone else’s relief, and breaching an EIS limit no longer wipes out all relief. HMRC will also clamp down on fees that divert investors’ money away from the business.
One practical reminder: shares acquired by exercising EMI options do not qualify for EIS or SEIS relief, but a company can run both schemes side by side.
Employing people
Since April 2025 employers have paid NIC at 15% (up from 13.8%) on earnings above £5,000 (down from £9,100). A £30,000 hire now costs £3,750 a year in employer NIC, against about £2,900 before. The Employment Allowance more than doubled to £10,500 and is open to all eligible employers, which protects the smallest businesses, but it covers the NIC on only about three £30,000 salaries.
The National Living Wage rose to £12.21 in April 2025 and £12.71 in April 2026, and will reach £13.21 in April 2027, with the rate for 18 to 20 year olds rising to £11.27. Each rise feeds straight through to NIC and pension costs, and Budget 2026 offered nothing to offset it.
Income tax and NIC thresholds, including the employer threshold, are frozen until April 2031. As pay rises, more of every salary is taxed and more of the team drifts into higher-rate tax, which in turn pushes up the pay they ask for.
Taking money out
From 2026-27, the basic and higher dividend rates rose by two points to 10.75% and 35.75%, with the additional rate unchanged at 39.35%. For owner-managers who pay themselves mainly in dividends, that is a direct pay cut. Tax on savings and property income will rise by four points in total from April 2027.
Corporation tax is the one fixed point. The 2024 Corporate Tax Roadmap caps the main rate at 25% for this Parliament and protects full expensing, the annual investment allowance, R&D reliefs and the patent box. Budget 2026 did trim the main writing down allowance from 18% to 12% from April 2027, while raising the main first-year allowance from 40% to 50%.
The bigger change is to how value comes out of a company. HMRC consulted in June 2026 on modernising the taxation of distributions and repayments of capital, and at Budget 2026 the government confirmed it will go ahead with all seven proposals. Capital that can be repaid after a share reorganisation will be frozen at the amount originally subscribed, closing a common route to tax-efficient capital reductions. Company buybacks will face mechanical tests in place of the current trade benefit test, the transactions in securities rules will be rewritten, and distributions from overseas companies will be taxed like UK ones.
There are concessions. Listed companies are excluded from the frozen capital rule, statutory demerger relief will be broadened, the 5% buyback threshold is under review, the two-year employment condition will be relaxed and genuine family succession is to be protected. Draft legislation follows in 2027 and the rules apply from April 2028. They will not be retrospective, but anyone planning a buyback, capital reduction or family succession has roughly 17 months under today’s rules.
What it adds up to
Put the pieces together and a pattern emerges. The government has been generous at the start of the journey: raising money, rewarding staff and now help for people testing an idea. It has taken more in the middle, through the cost of employing people and paying yourself. At the end, the picture has split, with a much better deal for founders who qualify for Founders’ Relief and a steadily worse one for everyone relying on BADR.
That is a defensible choice. But it has been made one Budget at a time, often with immediate effect, and never set out as a plan. In barely two years founders have absorbed an overnight CGT rise, two BADR rate increases followed by a halved limit, two rounds of EOT changes, a U-turn on business relief and a new relief whose final conditions are still out for consultation. What they lack is not generosity but predictability.
Ask any founder what they want from the tax system and the answer is rarely lower rates. It is to stop moving the goalposts. Big business got a roadmap in 2024. Entrepreneurs are still reading the runes every autumn.
This is the companion to our Budget piece, ‘Healey’s first Budget: one for the bloody-minded entrepreneur?’