This article is stated as at 31 October 2026. The BADR cut and founders' relief still need to be legislated in Finance Bill 2026-27, and the founders' relief conditions are under consultation until 30 November 2026 and may change. Take advice on your own circumstances before acting.
The Budget on 28 October 2026 gave business owners one new relief and took half of an old one away. From 6 April 2027 the Business Asset Disposal Relief (BADR) lifetime limit falls from £1 million to £500,000, which costs a higher rate taxpayer up to £30,000 on a sale. At the same time a new founders’ relief capital gains tax rate of 10% is proposed on up to £10 million of gains, but only for founders of fast-growing companies with at least £10 million of turnover and 15 full-time equivalent employees. Neither change is law yet.
What changes on 6 April 2027?
The government will legislate in Finance Bill 2026-27 to cut the BADR lifetime limit from £1 million to £500,000 for qualifying disposals made on or after 6 April 2027. The BADR rate stays at 18%. Alongside it comes founders’ relief, a 10% rate on up to £10 million of gains on qualifying shares or securities sold on or after the same date. Founders’ relief is under consultation until 30 November 2026 and will then be added to the Bill by amendment, so its conditions could still change.
| Capital gains tax (UK-wide) | 2026/27 | 2027/28 (from 6 April 2027) |
|---|---|---|
| BADR rate | 18% | 18% |
| BADR lifetime limit | £1 million | £500,000 (announced) |
| Founders’ relief rate | Not available | 10% (under consultation) |
| Founders’ relief lifetime limit | Not available | £10 million (under consultation) |
| Investors’ relief rate and limit | 18%, £1 million | 18%, £1 million |
| Main rates (basic, higher) | 18%, 24% | 18%, 24% |
| Annual exempt amount (individuals) | £3,000 | £3,000 |
BADR is a lifetime limit across all your qualifying disposals, not an annual one, so gains you have already relieved count against it.
HMRC expects about 13,000 of the roughly 51,000 people who claim BADR to be affected by the cut, and about 600 people a year to qualify for founders’ relief. Most owner-managed businesses will feel the BADR cut, if either change touches them, rather than benefit from founders’ relief. So start by adding up the BADR you have already claimed and the gain you expect on a sale.
How much more tax will the BADR cut cost?
If your lifetime qualifying gains will never exceed £500,000, nothing changes. Above that, the slice of gain between £500,000 and £1 million moves from 18% to the main rate of 24% for a higher rate taxpayer, so the most anyone loses is 6% of £500,000, which is £30,000.
| Qualifying gain (higher rate taxpayer, no BADR used before) | Tax on a disposal before 6 April 2027 | Tax on a disposal from 6 April 2027 | Extra tax |
|---|---|---|---|
| £500,000 | £90,000 | £90,000 | Nil |
| £750,000 | £135,000 | £150,000 | £15,000 |
| £1 million | £180,000 | £210,000 | £30,000 |
| £3 million | £660,000 | £690,000 | £30,000 |
The figures ignore the £3,000 annual exempt amount.
Someone who claimed BADR on £400,000 of gains on an earlier sale has £600,000 of the limit left today, but only £100,000 from 6 April 2027. Anyone who has already used £500,000 or more will have nothing left after that date, so check your past returns before planning anything.
Sole traders and partners are caught too. BADR covers the sale of the whole or part of a business, assets sold within 3 years after a business ceases, and associated disposals (such as premises you own personally and your company uses) made when you withdraw at least 5% from the business. Founders’ relief applies only to shares and securities, so for unincorporated businesses the cut is the only change. If property is part of the picture, our guide to capital gains tax for property owners covers the wider position. Trustees with qualifying business assets face the same £30,000 maximum, since they also pay 24% on gains outside BADR.
Should you sell before 6 April 2027?
For most owners, only if the sale was going to happen around then anyway. A saving of at most £30,000 is worth having on a deal already in negotiation that can complete comfortably before 6 April 2027. It is not worth accepting a lower price or a weaker buyer, because a price cut larger than the tax saved leaves you worse off.
Bringing a deal forward does not cure a failed condition either. For shares, the company must be your personal company throughout the 2 years before the sale: you hold at least 5% of the ordinary shares and voting rights, you are entitled to at least 5% of distributable profits and assets on a winding up (or 5% of the sale proceeds), you are an officer or employee, and the company is a trading company or the holding company of a trading group. Owners who stepped down as a director or let investment assets build up in the company should check this first.
Official guidance does not say whether starting a members’ voluntary liquidation (MVL) before 6 April 2027 secures the £1 million limit for distributions made later, so do not assume it does. Our notes on capital gains tax planning cover the general approach, but the timing of an MVL needs advice on your own figures.
And once a sale completes, remember to claim. For a disposal in 2026/27 the BADR claim deadline is 31 January 2029, the first anniversary of the 31 January after the tax year of sale. Miss it and the relief is lost.
Which limit applies if you exchange before 6 April 2027 and complete after?
Under section 28 of the Taxation of Chargeable Gains Act 1992, the date of disposal is normally the date an unconditional contract is made, not the date of completion, so exchanging before 6 April 2027 and completing later would ordinarily fix the disposal in 2026/27.
The new anti-forestalling rules change that for unconditional contracts entered into before 6 April 2027 but completed on or after it. The £500,000 limit will apply unless the parties can show they did not enter into the contract with a purpose of obtaining a tax advantage from the section 28 timing rule. Where buyer and seller are connected, the test is whether the contract was entered into for wholly commercial reasons.
An arm’s length sale to a trade buyer where completion slips into April 2027 for ordinary commercial reasons should be defensible. A hurried sale to a family member or family trust, exchanged in March 2027 with completion months later, is exactly what the rules target. Keep board minutes, correspondence with the buyer and the reasons for the timetable.
Share-for-share exchanges need care too. Where you swap your shares for shares in the buyer, the gain normally carries over into the new shares, but you can elect under section 169Q to be taxed on it now instead. If that election is made on or after 6 April 2027, the disposal is treated as taking place when the election is made, so the £500,000 limit applies.
Who qualifies for founders’ relief capital gains tax?
The draft conditions are narrow, and they test the company as well as the individual. You must have held at least 25% of the ordinary share capital when the trade the company was formed for (or preparation for it) began, held the shares for at least 5 tax years before the sale, and been UK resident for at least 5 continuous tax years before the sale.
The company must be within UK corporation tax, have had a substantial UK presence for the 5 accounting periods before the sale, be a trading company or the holding company of a trading group, and still carry on the new trade it was set up for without a major change in its nature. In the accounting period ending in the year before the sale it needs turnover of at least £10 million and at least 15 qualifying full-time equivalent employees. Listed and unlisted companies can qualify, but the sectors excluded from the Enterprise Investment Scheme, such as land dealing, financial services and property development, are excluded here as well.
It must also pass at least two of three founders’ relief growth tests:
- average compound turnover growth of 25% a year over 3 consecutive accounting periods within the 10 years before the sale, starting from turnover of at least £10 million;
- average compound growth of at least 25% a year in qualifying full-time equivalent employees over 3 consecutive accounting periods in the same 10 years, starting from at least 15;
- qualifying research and development spending of at least £1.5 million, with R&D tax relief claimed for a period ending within the 3 years before the sale.
So it is not only for tech start-ups, but it is only for businesses that have grown quickly from an already substantial base. A well-run family company with steady turnover will not qualify however long it has been owned, and nor will a shareholder who joined after trading began or held less than 25% at the start. The relief will be claimed on your Self Assessment return with a supplementary form. If your company is near the thresholds, check your last three sets of accounts against the turnover and employee tests now, and remember the consultation closes on 30 November 2026, so the conditions could still change.
Using BADR and founders’ relief together
The £10 million founders’ relief limit is reduced by BADR and investors’ relief claimed from 6 April 2027. An owner who uses £500,000 of BADR on one business in 2027/28 would have £9.5 million of founders’ relief left for a later qualifying sale. The official wording does not say whether claims made before 6 April 2027 count, and how the two reliefs will interact on a single sale is not yet settled, so plan them together.
For a founder who clearly qualifies, the difference is large. On a £5 million gain, a sale before 6 April 2027 using the full £1 million of BADR costs £1,140,000 (£180,000 plus 24% of £4 million). The same gain with founders’ relief after that date costs £500,000, a saving of £640,000. But if the final rules shut you out, waiting leaves you with the reduced BADR limit and a bill of £1,170,000. Waiting only makes sense where the company passes every test with room to spare, and even then not before the legislation is published.
If you plan to bring senior staff into the equity before a sale, our guide to company share option plans explains one route, though new options cannot help anyone meet the founding stake test, which looks at who held 25% when trading began.
Key dates
| Date | What happens |
|---|---|
| 28 October 2026 | Budget 2026 announces the BADR cut and founders’ relief |
| 30 November 2026 | Founders’ relief consultation closes |
| 6 April 2027 | BADR limit falls to £500,000; founders’ relief (10%, £10 million limit) starts; the gift holdover relief formula for shares is modernised |
| 31 January 2028 | BADR claim deadline for 2025/26 disposals |
| 31 January 2029 | BADR claim deadline for 2026/27 disposals |
Questions clients ask
Is founders' relief only for tech start-ups?
No. Any trading company outside the sectors excluded from the Enterprise Investment Scheme, such as land dealing, financial services and property development, can qualify. But the company needs at least £10 million of turnover and 15 full-time equivalent staff, and must pass two of three growth tests. Only one of those tests involves research and development spending, so a fast-growing non-tech business can still qualify.
Can I claim both BADR and founders' relief on the same sale?
The draft rules do not yet say how the two reliefs will interact on a single sale. What is known is that BADR and investors' relief claimed from 6 April 2027 reduce the £10 million founders' relief lifetime limit, so using £500,000 of BADR would leave £9.5 million. Founders' relief is still under consultation, so plan the two together and wait for the legislation before relying on either.
Does a members' voluntary liquidation started before April 2027 lock in the £1 million limit?
Official guidance does not say so, and you should not assume it. The new limit applies to qualifying disposals made on or after 6 April 2027, and the anti-forestalling rules show HMRC is watching timing closely. If you are considering closing a company through a liquidation around that date, take advice on when the distributions will be treated as made before you start.
Could the founders' relief rules change before April 2027?
Yes. Founders' relief is under consultation until 30 November 2026, and the government will then add it to Finance Bill 2026-27 by amendment. Any of the draft conditions, including the 25% founding stake, the £10 million turnover test and the growth tests, could be altered. Do not delay a sale on the strength of the draft rules without allowing for that.
I'm a basic rate taxpayer. Does the BADR cut affect me?
Possibly. The main capital gains tax rate for gains within your basic rate band is 18%, the same as the BADR rate. But a gain large enough to exceed the new £500,000 limit will almost always take you well into the higher rate band, where gains outside BADR are taxed at 24%. In practice the cost is close to that for a higher rate taxpayer.
Speak to us. To discuss how this affects you or your business, please contact your usual Jack Ross partner, call us on 0161 832 4451 or send us a message.
Sources
- Capital Gains Tax: new Business Asset Disposal Relief lifetime limit
- Capital Gains Tax: introduction of a new founders relief
- Capital Gains Tax: introduction of a founder relief
- Budget 2026: Overview of tax legislation and rates (OOTLAR)
- Budget 2026 OOTLAR Annex A: rates and allowances
- HS275 Business Asset Disposal Relief (2026)