Autumn 2026 Budget: What the reduction in BADR and the introduction of Founders’ Relief mean for business owners planning an exit

The announcement of a new Founders’ Relief in the Autumn 2026 Budget is likely to attract plenty of attention. In principle, a 10% capital gains tax (CGT) rate on gains of up to £10 million could be a valuable tax saving. For a qualifying founder, the benefit could amount to as much as £1.4 million on the sale of a successful business.

However, the details behind the headline are less generous than they appear. The proposed eligibility requirements are highly restrictive, and many entrepreneurs will find themselves outside the scope of the new regime. For many owner-managed businesses, the more consequential Budget measure is likely to be the reduction in the Business Asset Disposal Relief (BADR) lifetime allowance.

BADR: A smaller lifetime allowance

The Government has confirmed that the BADR lifetime limit will fall from £1 million to £500,000.

For shareholders involved in larger transactions, the additional tax cost may not materially influence an exit decision. For owners of smaller businesses, however, the impact is more noticeable. A shareholder disposing of a qualifying business could face up to £30,000 of extra tax compared with the current rules.

Many of those affected will be individuals who have spent years building and sustaining their businesses, often employing local staff and committing their own capital in challenging trading conditions. While some have been able to enjoy the rewards of success during ownership, others have retained profits within their companies and regard the eventual sale proceeds as a key part of their retirement planning.

The decision not to increase CGT rates will undoubtedly come as a relief to many business owners who feared a more significant tax burden. Nonetheless, entrepreneurs who do not meet the criteria for the new Founders’ Relief should not be overlooked. BADR remains one of the few tax incentives available to a broad range of business owners and helps recognise the financial and personal risks involved in establishing and growing a business. Encouraging enterprise should remain a policy priority.

Founders’ Relief: significant opportunity, limited reach?

Under the current proposals, the new 10% CGT rate will be available only to a relatively narrow group of founders disposing of qualifying growth businesses. Although the legislation remains subject to consultation, the draft conditions currently include the following requirements:

Individuals:

• Must have held at least 25% of the company’s ordinary share capital from the commencement of trading
• Must have owned those shares for a minimum of five years before the disposal
• Must have been UK resident for a continuous period of at least five years prior to disposal.

Companies:

• Must be a trading company
• Must have generated turnover exceeding £10 million in the year before disposal
• Must have employed more than 15 full-time employees before disposal.

Growth and innovation tests (two of three required):

• Average annual compound turnover growth of 25% over a continuous three-year period within the previous ten years
• Average annual compound employee growth of 25% over a continuous three-year period within the previous ten years
• More than £1.5 million of qualifying R&D expenditure claimed for tax relief during the three years before disposal.

These conditions are likely to disqualify many genuine founders. The requirement to retain a 25% interest from the outset may prevent qualification where entrepreneurs have diluted their shareholding to secure external investment or incentivise management. Similarly, the turnover, employee and growth thresholds may exclude many mature, profitable businesses that have succeeded without pursuing rapid expansion.

One potentially positive aspect is the inclusion of the R&D criterion. Businesses involved in innovation may wish to review both their historic expenditure and the availability of R&D tax relief claims to determine whether they could satisfy the requirements. Even so, the relief appears designed for a relatively small subset of founder-led businesses rather than the wider owner-managed market.

Practical considerations

Consider accelerating a disposal

Business owners who are already contemplating a sale should assess whether completing a transaction before 6 April 2027 would enable them to take advantage of the current £1 million BADR lifetime limit.

Review Share Incentive Arrangements

EMI and EMI2 share schemes continue to offer valuable opportunities to incentivise and retain key employees, particularly where an exit event may be on the horizon.

Take advice early on Founders’ Relief

Eligibility will depend on a range of historic factors, including shareholding levels, growth metrics and R&D activity. Early planning and professional advice will be important in determining whether the relief may be available when a future disposal occurs.

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This article is intended for general information purposes only and should not be relied upon as legal or tax advice. The proposed Founders’ Relief remains under consultation, and the final legislation may differ from the measures currently outlined in the Autumn Budget 2026.