Hollie Gallagher
- Partner
- Corporate
Founders’ Relief and BADR: what the Budget means for business owners considering an exit
Changes to Business Asset Disposal Relief and the proposed introduction of a new Founders’ Relief could have significant implications for business owners planning an exit. We look at what is changing, who may benefit and why early planning matters.
A changing tax landscape for business owners
The Budget presents a mixed picture for business owners, particularly those considering a future sale.
The reduction in the Business Asset Disposal Relief (BADR) lifetime limit from £1 million to £500,000 may be unwelcome news for those anticipating significant gains on an exit. However, alongside this change, the government has introduced proposals for a new Founders’ Relief aimed at shareholders in high-growth, innovative UK businesses.
From 6 April 2027, the new relief is intended to provide a 10% capital gains tax rate on qualifying disposals of shares and securities, subject to a lifetime limit of £10 million.
Founders’ Relief would sit alongside, rather than replace, BADR. However, the £10 million lifetime limit would be reduced by amounts claimed under BADR and Investors’ Relief from 6 April 2027.
Who could qualify for Founders’ Relief?
While the headline £10 million limit is potentially attractive, the proposed qualifying conditions are considerably more demanding than those for BADR and remain subject to consultation.
Among the requirements, shareholders would need to satisfy a strict 25% shareholding test and certain UK residence conditions. The underlying business would also need to meet prescribed tests relating to growth and innovation, as well as a £10 million turnover requirement.
There would also be conditions relating to changes in the nature of the business’s trade. This could prove particularly significant for innovative businesses that have naturally evolved, diversified or pivoted as they have grown.
The proposed rules are sufficiently prescriptive that shareholders may need detailed information from the business itself to establish whether they qualify. HMRC has acknowledged that this could create practical difficulties, particularly where shareholders do not have ready access to the necessary information.
Founders’ Relief could therefore provide a valuable alternative to BADR for some business owners, but its stringent conditions mean its availability may be relatively limited.
What does this mean for owners considering a sale?
For business owners already contemplating an exit, the Budget provides another reason to review the timing and structure of a potential sale.
With the BADR changes due to take effect from 6 April 2027, owners who are already considering a transaction may want to assess whether there is a commercial case for completing a disposal before that date. Importantly, this is about starting the planning process early, rather than allowing the tax timetable to dictate the transaction.
A business sale should not generally be rushed simply to secure a tax advantage. Achieving the right valuation, identifying the right buyer and negotiating appropriate legal protections are likely to have a much greater bearing on the overall outcome than the tax saving alone.
Plan early, but do not let tax drive the deal
The key message for business owners is therefore not to rush, but to plan.
Those contemplating an exit should consider the potential tax position alongside the structure of the transaction, likely valuation, market appetite and their wider personal and commercial objectives. Allowing sufficient time to consider all of these factors provides the best opportunity to structure the sale effectively and achieve the right overall outcome
This article is for general information purposes only and does not constitute legal advice or a comprehensive statement of the law. Specific legal advice should always be sought in relation to individual circumstances.
Meet the team:
Michael Ridsdale
- Partner
- Corporate Tax
