Founders' Relief and the BADR Cut: Why Most Business Owners Should Aim to Sell Before April 2027

Quick answer: The Budget on 28 October 2026 announced Founders' Relief, a 10% capital gains tax rate on up to £10 million of gains. The conditions are so narrow that the government expects only around 600 people a year to qualify. The same Budget halves the Business Asset Disposal Relief (BADR) lifetime limit from £1 million to £500,000 for disposals on or after 6 April 2027. For most owner-managed businesses that is a net loss: up to £30,000 more tax per person and £60,000 for a couple. If a sale is on the horizon, the aim should be to complete before 6 April 2027.

This article is general information. Founders' Relief is still at consultation and the BADR transitional rules have not been published. Please take advice before acting.

Our first reaction, and our second

When the Chancellor announced Founders' Relief, our first reaction was excitement. A 10% rate on up to £10 million of gains sounded like the return of Entrepreneurs' Relief at its most generous.

Then we read the technical consultation. The relief is aimed at founders of large, fast-growing, innovative companies. Most of the business owners we work with, including many very successful ones, will not get near it. Meanwhile the relief they actually use, BADR, has been cut in half.

So for most sellers, this Budget takes away more than it gives.

What Founders' Relief requires

The conditions below come from the consultation published on Budget day. They may change before the consultation closes on 30 November 2026.

You, as the seller, must:

• have held at least 25% of the company's ordinary shares, with matching votes and economic rights, when the trade began (or when preparation for it began);
• have held the shares for at least five years before the sale; and
• have been UK resident for at least five continuous tax years before the sale.

The company must:

• be a trading company (or the holding company of a trading group), still carrying on the trade it was set up for;
• not carry on excluded activities, which follow the EIS list and include dealing in land, property development and financial services;
• have turnover of at least £10 million and at least 15 qualifying full-time employees in the accounting period before the sale; and
• meet at least two of three growth and innovation tests.

The three tests are:

1. Turnover growth of at least 25% a year, compounded over three consecutive accounting periods within the ten years before the sale, starting from turnover of at least £10 million. Growing from £10 million at 25% a year for three years takes you to about £19.5 million.
2. Headcount growth of at least 25% a year over three consecutive periods, starting from at least 15 full-time employees.
3. Research and development spending of £1.5 million or more that qualified for R&D relief, with claims for periods ending in the three years before the sale.

The £10 million limit is also reduced by any BADR or Investors' Relief claimed from 6 April 2027.

The conditions below come from the consultation published on Budget day.

Who that leaves out

Put those tests together and most owner-managed companies fall outside:

• Businesses that grew steadily rather than explosively. A profitable company growing at 10% a year will not pass the growth tests, however valuable it is.
• Founders who brought in partners early. If you held less than 25% when the trade began, the relief is not available, even if you hold far more today.
• Property businesses, which are excluded activities.
• Smaller trading companies, below £10 million turnover or 15 full-time staff. Directors, contractors and agency workers do not count towards the headcount.
• Owners who have lived abroad during the five years before the sale.

The government's own estimate is around 600 individuals and 400 businesses a year. For comparison, it says that even after the cut three-quarters of BADR claimants will still have relief on their whole gain. BADR is the relief that matters to most sellers, and it is the one that has been reduced.

The BADR cut in numbers

BADR gives an 18% capital gains tax rate on qualifying business disposals. From 6 April 2027 the lifetime limit falls from £1 million to £500,000. The 18% rate does not change. Gains above the limit are taxed at 24%.

The figures are per person and ignore the annual exempt amount. The extra tax is capped at £30,000 per person (6% of the £500,000 that loses relief), so it applies in full to anyone with £1 million or more of gains.

A couple who each own half of a company worth £2 million, with little base cost, will pay up to £60,000 more between them if the sale completes on or after 6 April 2027. That is the starting point. Where there are more shareholders, such as adult children or long-serving managers, the total is higher.

Timing: completion, not just signing

For capital gains tax, the date of disposal is usually the date the contract becomes unconditional, which is normally exchange or completion. The Budget documents say there will be special provisions for contracts entered into before 6 April 2027 that have not completed, and for some share reorganisations and share exchanges. The detail has not yet been published.

Until it is, we would plan for the sale to complete before 6 April 2027, rather than relying on a contract signed before that date. A conditional contract, a long gap between exchange and completion, or a share-for-share exchange with the buyer all need checking against the final rules.

A typical sale takes six to nine months from first conversations to completion. Heads of terms, due diligence, the sale agreement and any pre-sale restructuring all take time. For a sale in the 2026/27 tax year, the process needs to start now.

What to do before 6 April 2027

1. Set a realistic timetable. Work back from a completion date in February or March 2027, leaving room for delays.
2. Check that BADR is actually available. The company must be trading, and each seller must have held at least 5% of the shares and votes and been an officer or employee for two years. Large cash balances or investment property can put trading status at risk. Our article on how much surplus cash is too much for trading status explains the test.
3. Look at who owns the shares. Each shareholder has their own lifetime limit. Shares passed to a spouse well before the sale, where both meet the conditions, can double the relief. This must be genuine and planned with care.
4. Separate property or surplus assets first. A buyer rarely wants the property, and separating it can protect BADR on the trading business. A capital reduction demerger needs to be planned well ahead of the sale.
5. Consider a holding company. If you want to reinvest rather than spend the proceeds, selling through a holding company can change the arithmetic. See selling your company through a holding company or personally.
6. Do not let the tax tail wag the dog. A better price or better terms in 2027 can be worth more than £30,000. The deadline matters, but it should not push you into a poor deal.

If you might qualify for Founders' Relief

If your company has £10 million or more of turnover, fast growth or significant R&D, and you held 25% from the start, it may be worth waiting until after 6 April 2027. But the conditions are only proposed, the final law is not yet known, and HMRC is considering anti-avoidance rules aimed at restructuring done to bring a company within the relief. Any decision to delay a sale should be modelled both ways, and reviewed again once the final rules are published.

The consultation is open until 30 November 2026. If the conditions would exclude your business for reasons that seem unfair, this is the time to say so.

FAQs

Is Business Asset Disposal Relief being abolished?

No. The 18% rate continues, but the lifetime limit falls from £1 million to £500,000 for disposals on or after 6 April 2027.

How much more tax will I pay if I sell after April 2027?

Up to £30,000 per person, if your gains are £1 million or more. A couple who each own half of a qualifying company could pay up to £60,000 more between them.

Does signing a contract before 6 April 2027 protect me?

Not necessarily. The government has said there will be special provisions for contracts signed but not completed before that date, but the detail has not been published. We recommend aiming for completion before 6 April 2027.

Have I used up my lifetime limit if I claimed BADR before?

Your earlier claims count towards the limit. If you have already used £500,000 or more, a disposal on or after 6 April 2027 would get no further BADR.

Can a property company qualify for Founders' Relief?

No. Dealing in land and property development are excluded activities, and a company holding investment property is unlikely to be a trading company.

When will the Founders' Relief rules be final?

The technical consultation closes on 30 November 2026. The government plans to legislate through amendments to the Finance Bill 2026-27, with the relief applying to disposals from 6 April 2027.

Talk to us

If you are planning to sell in the next 12 to 18 months, we can look at your timetable, your expected gain and any planning that should be done before a sale. Our specialists prepare the advice, and every case is reviewed by a Chartered Tax Adviser, on fees agreed in advance. For more on exit planning, see our selling your business hub, or book a call for a free 20-minute conversation.

Sources

• Budget 2026: overview of tax legislation and rates: https://www.gov.uk/government/publications/budget-2026-overview-of-tax-legislation-and-rates-ootlar/budget-2026-overview-of-tax-legislation-and-rates-ootlar
• Budget 2026, Annex A rates and allowances: https://www.gov.uk/government/publications/budget-2026-overview-of-tax-legislation-and-rates-ootlar/annex-a-rates-and-allowances
• Capital Gains Tax: introduction of a new Founders' Relief: https://www.gov.uk/government/publications/capital-gains-tax-introduction-of-a-founder-relief/capital-gains-tax-introduction-of-a-new-founders-relief
• Founders' Relief technical consultation: https://www.gov.uk/government/consultations/founders-relief-technical-consultation
• Budget 2026 document: https://www.gov.uk/government/publications/budget-2026-document/budget-2026-html
• Business Asset Disposal Relief: https://www.gov.uk/business-asset-disposal-relief

This article is general information, not advice. Tax rules change and their effect depends on your circumstances.