The UK government has opened a consultation on a proposed 10% capital gains tax rate for qualifying founders and early investors when they sell shares in high-growth, innovative companies. Announced on 28 October, Founders' Relief would cover up to £10 million of eligible lifetime gains per individual, with demanding tests covering the original ownership stake, UK residence and the company's performance.

HM Treasury's technical consultation closes on 30 November 2026. The government intends to introduce legislation through Finance Bill 2026-27 so that the relief can apply to qualifying disposals from 6 April 2027. The detailed conditions remain proposals under consultation, rather than a relief already available for a sale today.

The £10 million figure is a limit on eligible gains, not a funding award or a company's valuation. The proposed cap applies to each individual, allowing more than one qualifying founder in the same business to claim. Amounts claimed under Business Asset Disposal Relief and Investors' Relief from 6 April 2027 would reduce that limit.

Early ownership alone would not qualify

The consultation proposes that an individual must have held 25% of the company's ordinary share capital when its intended trade, or preparations for that trade, began. Corresponding voting rights and rights to distributable profits and assets on winding up would also matter. The consultation also requires UK residence under the Statutory Residence Test for five continuous tax years before disposal.

Only individuals could claim. The original stake could be held through the holding company of a trading group, and the relief would not be confined to shares acquired when the company started. Later-acquired shares could also qualify if all the conditions were met, according to the consultation's treatment of ownership structures.

The company would need to fall within UK Corporation Tax and maintain a substantial UK presence for the five accounting periods before disposal. It must remain a trading company, or the holding company of a trading group, without substantial non-trading or excluded activities. Treasury proposes using Enterprise Investment Scheme exclusions, including dealing in land, financial services and property development.

The business would also need at least £10 million in turnover and at least 15 qualifying full-time employees in the accounting period before disposal. The consultation describes qualifying full-time employees as working at least 35 hours a week and receiving at least the UK National Minimum Wage. Directors, contract workers and agency workers would be excluded from that employee condition.

Growth tests and company records

Companies would have to pass at least two of three further tests. The turnover test requires average annual compound growth of 25% across three consecutive accounting periods within the ten years before disposal, starting from a period with turnover of at least £10 million. The headcount test uses a similar growth threshold and period, starting from at least 15 full-time employees.

The third test concerns innovation. It requires at least £1.5 million of qualifying research and development expenditure, with R&D tax relief claimed for that expenditure in accounting periods ending within three years before disposal. A business that does not claim R&D relief could still meet the proposed rules through the turnover and headcount tests together.

Claims would be made through the individual's Self Assessment return. Treasury is considering a standard accompanying form recording the periods relied on for each condition. Its preferred approach would also give individuals a statutory right to request supporting information from the company, because historical records needed for a claim may extend beyond existing retention requirements.

The consultation identifies a potential complication if HMRC later rejects a company's R&D tax claim on which an individual's eligibility depended. A founder who consequently failed the conditions could lose the relief and owe additional tax plus interest. Treasury is seeking views on administration, confidentiality and safeguards against artificial restructuring, rather than promising that an initial claim would settle every later compliance question.

This is a proposed tax measure, separate from the £450 million venture-debt product and scale-up support package announced by the government. Dalimss News has also reported on the separate consultation about HMRC access to e-invoice data. Responses to the founders consultation will inform the final design before legislation is introduced.

Contains public sector information licensed under the Open Government Licence v3.0. Treasury material has been condensed and independently rewritten.