Two exit-tax changes point in opposite directions
Britain's 2026 Budget contains a significant new incentive for a narrow group of founders. HMRC proposes a 10% capital-gains-tax rate on up to £10 million of qualifying lifetime gains from 6 April 2027. At the same time, the government plans to halve the separate Business Asset Disposal Relief lifetime limit from £1 million to £500,000. The first measure targets innovative, high-growth companies; the second reduces the benefit of a broader existing relief.
They are not interchangeable allowances. Business Asset Disposal Relief currently taxes eligible gains at 18% up to its lifetime limit. The new founders' measure would require specific conditions concerning a founder's role, equity stake and the company. A profitable sale does not automatically qualify. A technical consultation runs until 30 November, and the detailed legislation is still to be settled.
The eligibility test will determine the economic effect
HMRC says the new measure is intended for founders and early investors who made a substantial contribution to creating high-growth innovative companies and held a large stake from the commencement of trading. HMRC's published proposal sets out demanding draft thresholds: the founder must have held at least 25% of ordinary share capital when trading began, retained qualifying shares for five tax years and been UK resident for five continuous tax years. The company must have at least £10 million in turnover and 15 full-time equivalent employees before disposal, plus meet two of three growth or research-and-development tests. These are proposed conditions, not yet enacted law. Venture-backed founders can dilute their holdings over successive funding rounds; co-founders may join at different stages or hold shares through investment vehicles.
These distinctions matter because the potential tax difference on a large exit is material. It could influence where entrepreneurs build their next company and how investors structure equity. But an attractive headline rate will be less valuable if eligibility remains uncertain until a transaction is negotiated. Predictability and administrability are central to the incentive.
The BADR reduction has its own timing risk
HMRC's 29 October impact note says the existing lifetime limit falls to £500,000 for qualifying disposals on or after 6 April 2027. Earlier claims count against the lifetime cap. The government estimates around 13,000 people will be affected, while approximately three-quarters of claimants will still receive relief on their entire eligible gain.
Proposed anti-forestalling provisions address certain contracts signed before the deadline but completed later, and some share reorganisations. Simply signing a deal before April may not secure the older allowance. Owners considering a disposal should review their actual completion arrangements and previous relief claims with qualified advisers, rather than rely on an assumed cut-off.
Employee equity is part of the same policy shift
The Budget also proposes doubling the Company Share Option Plan individual limit from £60,000 to £120,000, with an expanded scheme called EMI2. It would remove the interaction between CSOP and Enterprise Management Incentive individual limits. The changes are planned for options granted from 6 April 2027 and are designed to help growing companies attract and retain staff.
Founder exit relief and employee options address different phases of business formation. One affects the reward for taking entrepreneurial risk; the other helps a company recruit before it can offer the cash compensation of a mature competitor. Neither guarantees venture funding, commercial demand or successful exits. Employers will still need compliant grants and accurate records.
What to review before the Finance Bill is final
Founders should map their cap tables, holding dates, dilution, historic BADR use and likely exit structures. Employees and companies should review option grants and the distinction between EMI and the revised CSOP regime. Because the new founders' relief is subject to consultation, plans should allow for changes in definitions and implementation details.
The Budget's strategic choice is to favour a targeted category of high-growth founder while reducing a more general disposal allowance. Whether this helps British scaleups will depend on the final rules and the stability of the policy, not simply the advertised £10 million figure.