- New Founders’ Relief offers a 10% Capital Gains Tax rate on up to £10m of qualifying lifetime gains
- Business Asset Disposal Relief (BADR) lifetime limit is being halved from £1m to £500,000 from April 2027
- Government estimates around 600 individuals a year will qualify for Founders’ Relief
- The new relief is forecast to cost £260m in 2027–28, compared with £60m expected to be raised by restricting BADR
The Chancellor’s latest Budget has put high-growth businesses and entrepreneurs firmly in the spotlight, with new incentives designed to encourage investment and reward successful founders. But while some are being offered a potentially significant tax break when they sell their business, other owners could find themselves paying more.
The introduction of Founders’ Relief means qualifying founders will be able to pay Capital Gains Tax at 10% on up to £10m of lifetime gains from April 2027. However, alongside this, the government is halving the lifetime limit for Business Asset Disposal Relief (BADR), from £1m to £500,000.
For established business owners who have spent years building a company, employing people and contributing to the economy, the changes raise an important question: is the Budget doing enough for them?
Simon Thomas, Managing Director of Ridgefield Consulting, Oxfordshire-based Chartered Accountants, said:
“On the face of it, the Budget appears to be offering a significant incentive to entrepreneurs, with a 10% tax rate on up to £10m of qualifying gains. But when you look at the wider picture, it feels very much like giving with one hand and taking with the other.
“While the government is introducing a generous new relief for a relatively small group of high-growth founders, it is reducing Business Asset Disposal Relief for everyone who relies on it. Halving the lifetime limit from £1m to £500,000 means established business owners could face a considerably higher Capital Gains Tax bill when they come to sell the company they have spent years building.
“There is a real distinction between encouraging new businesses to start and scale, and recognising the people who have already taken the risk, invested their money and built successful businesses that employ people and contribute to the economy. Those businesses are not necessarily growing at the pace or in the way the new relief requires, but they are still vital.
“My concern is that we are creating a tax system that is increasingly favourable to a particular type of entrepreneur, while making the eventual sale of a more traditional, established business less tax-efficient. If the aim is to encourage enterprise and investment, we need to make sure the incentives work across the business lifecycle, not just at the start-up and high-growth end.”
Who will actually benefit?
The new Founders’ Relief is not open to every business owner. It comes with a number of qualifying conditions, including requirements around the founder’s shareholding, how long they have held their shares and evidence of the company’s growth or investment in research and development.
The government estimates that around 600 individuals a year will qualify. That is a relatively small group when compared with the wider population of business owners who may be affected by the reduction in BADR.
The difference in the projected cost of the two measures is also striking. Founders’ Relief is forecast to cost the government £260m in 2027–28, while reducing BADR is expected to raise £60m in additional revenue over the same period.
These figures do not tell us whether the new relief will generate the growth the government hopes for. But they do raise questions about who the changes are designed to benefit, and whether established business owners are being overlooked.
A mixed picture for business investment
There are some welcome measures for businesses looking to invest and expand. The increase in First Year Allowance to 50% should provide additional upfront tax relief on certain qualifying investments. However, this comes alongside a reduction in the main writing-down allowance from 14% to 12%, so the benefit will depend on the type of assets a business is investing in.
The Budget also includes changes intended to make employee share schemes more flexible and attractive to growing companies, alongside some simplification of the administration involved in research and development tax relief claims. The headline rates and limits for SEIS and EIS remain unchanged.
These measures may help businesses looking to innovate, attract investment and scale. However, they do not necessarily ease the pressures facing established employers, particularly those already dealing with higher employment costs following the increase in employers’ National Insurance.
For businesses across Oxfordshire, the picture is particularly relevant. The county has a mix of ambitious science and technology companies, professional services firms, manufacturers and independent businesses. Supporting the next generation of high-growth companies is important, but so is recognising the established businesses that provide jobs, services and investment across the local economy.
The question is whether the Budget strikes the right balance. Encouraging people to start and grow businesses is one thing, but making sure established owners still have the confidence and incentive to invest, employ and eventually sell is just as important.
