Key takeaways from the Budget 2026 for founders, entrepreneurs and investors

Posted Tuesday 3rd November 2026

Overview

Despite lots of rumours and pre-budget scaremongering about equalisation of Capital Gains Tax (CGT), Wealth Taxes, Exit Taxes etc. the first budget from new Chancellor John Healey delivered nothing too dramatic for business or investment in the UK and there were certain headline grabbing changes which seemed to be very supportive of founders and entrepreneurs.

There were no changes to the headline CGT rates which remain unchanged at 18% (basic) and 24% (higher rate).  This still feels competitive compared to the average rate across G7 countries of 27.3%.

Key Changes of note:

• Founders’ Relief (new): 10% CGT on up to £10m of lifetime gains for qualifying founders and significant early investors, for disposals on or after 6 April 2027. This grabbed headlines but conditions are strict and still under technical consultation (closes 30 November 2026). See below for more analysis.
• Business Asset Disposal Relief (BADR): lifetime limit halved from £1m to £500,000 from 6 April 2027; rate stays at 18%.
• Investors’ Relief (IR): no headline change announced (£1m lifetime limit, 18% rate), but IR and BADR claims from 6 April 2027 will reduce the Founders’ Relief £10m cap.
• EMI2: CSOP rebranded as EMI2 from 6 April 2027, individual limit doubled to £120,000, 15-year exercise window, and no overlap with EMI limits (combined £370,000 per employee).
• EMI changes: 180-day post-disqualification exercise window, EOT-owned companies can still use EMI, and grant notifications move to the annual return.

Founders’ Relief

A new CGT relief giving a 10% rate on up to £10m of lifetime gains, against a top CGT rate of 24%. It applies to qualifying share disposals on or after 6 April 2027 and is aimed at founders and significant early investors in high-growth, innovative UK companies. The maximum saving is £1.4m per individual.

Proposed conditions (HM Treasury technical consultation)

All individual and company conditions must be met, plus at least two of the three growth and innovation tests

 

Key Points to note

• Relevant at start-up, not at exit. The 25% test looks at the cap table when trading began. The key point here is that the 25% is only applicable at the outset if later dilution occurs a founder would still be eligible for the relief.
• Drafting point. The current draft as announced appears to require exactly 25% rather than at least 25%; this is expected to be clarified.
• Investors can qualify. Founders need not work in the business, so an early investor holding 25% from the outset may qualify. Only individuals can claim.
• Later shares count. Once the founding condition is met, relief extends to all shares disposed of, including those acquired later.
• Clawback risk. If HMRC later overturns the R&D claim relied on for the innovation test, the relief may be withdrawn, with interest.
• Shared cap. The £10m limit is reduced by BADR and Investors’ Relief claimed from 6 April 2027.

The technical consultation with HMRC closes at 11:59pm on 30 November 2026.

BADR and Investors’ Relief

BADR is halved from 6 April 2027; Investors’ Relief is not changed directly, but both now interact with Founders’ Relief.

• BADR cost. The maximum lifetime saving under BADR falls to £30,000 (ie 6% saving on the first £500k). A seller who qualifies for BADR but not Founders’ Relief pays up to £30,000 more on disposals from 6 April 2027 where the gain is over £500k.
• Owners with gains of £500,000–£1m who expect to sell soon have a window until 5 April 2027 to use the current £1m limit.
• EMI employees hit. Whilst the EMI changes are positive (see below) the effect of the changes to BADR will apply to EMI shares can access BADR without the 5% test applying to any EMI holders who exceed £500k of gain will therefore lose out as a result of the changes to BADR.
• Investors’ Relief. There appeared to be no changes to IR in the Budget beyond its interaction with the Founders’ Relief cap. Significant early investors are instead brought within Founders’ Relief where they meet the 25% founding-stake test.

EMI2 and EMI changes

From 6 April 2027 CSOP becomes EMI2, with double the individual limit and no overlap with EMI, giving scale-ups that outgrow EMI a stronger fallback.

Further EMI changes from 6 April 2027:

• 180 days (up from 90) to exercise after a disqualifying event while keeping the tax advantages.
• Companies moving to an Employee Ownership Trust can continue to use EMI.
• No separate HMRC notification for each grant; grants reported in the annual EMI return.

These build on the April 2026 EMI expansion (500 FTEs, £120m gross assets, £6m company limit, 15-year exercise window).

Other key measures

No broad-based tax rises; revenue comes mainly from banks, savers, landlords and slower capital allowances.

Practical implications

Founders and early investors

The new Founders Relief announced with a lifetime allowance at 10% for up to £10m of Capital Gain sounds great and applies to early investors as well.  However, the conditions appear to be very restrictive and based on encouraging super-fast scaling companies with an annual revenue of £10m or more.

To put this into context based on ONS analysis there are over 2.7m companies registered in the UK who are registered for VAT (i.e. a turnover of over £90k) of which between 800,000 to 900,000 have a turnover or revenue of more that £500k.  ONS estimates that only 38,000 companies in the UK have a revenue of over £10m.  Whilst the headline sounds really great unless the conditions are varied significantly there is very little prospect of this being a realistic or attractive incentive for Founders and Entrepreneurs.

The only way to influence this is to respond to the technical consultation Founders’ Relief: technical consultation – GOV.UK – please do take the time to respond.

At the same time the reduction to BADR from £1m to £500k (only a £30k tax differential will have a much greater impact on Founders, EMI holders and investors).

On a more positive note the changes to EMIs and EMI2 are very welcome as well as a number of other changes implemented in the Budget.

There are lots of things to consider here so please do get in touch if you’d like to discuss.

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This article is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action.

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