Autumn Budget 2026:
One of the more eye-catching measures is a 10% rate of capital gains tax for the sale of shares by founding members of companies. This is tabled to commence from 6 April 2027 and there will be a lifetime limit of £10 million of gain sheltered.
However, a closer look shows that the relief has a significant number of conditions that many businesses will struggle to meet. Although still subject to technical consultation, the conditions are currently as follows:
The seller conditions:
- At least 25% of the ordinary share capital was held when the trading activity commenced;
- Has held the shares for at least five years before the disposal;
- Has been UK tax resident under the statutory residence test for at least five continuous years before the disposal;
The company conditions:
- Must be in the scope of UK corporation tax and have a substantial presence in the UK over the five previous accounting periods;
- Cannot have substantial non-trading activities or excluded activities (using the same definitions as EIS);
- The same trade must have continued throughout the period of ownership;
- Turnover must be at least £10 million in the period before disposal;
- Must employ at least 15 full time or equivalent employees in the accounting period before disposal, excluding directors, contractors or agency staff.
Further, two of the following three conditions must be met:
- Growth of at least 25% in compound turnover over three consecutive accounting periods, at some time during the previous decade, but with starting turnover of at least £10 million;
- As above, but measured against growth in full time equivalent employees, with a starting number of 15;
- Incurred at least £1.5 million in qualifying R&D expenditure, for which it met all the conditions to have made a claim and has made that claim within three accounting periods before the date of disposal.
All shares disposed of by the founder will qualify, even if later shares are acquired, provided all the other conditions are met. The relief only applies to individuals.
Claims will be made via the taxpayers self-assessment return, although consideration is being given to a specific format for the claim to enable HMRC to better monitor compliance. The consultation period ends on 30 November 2026.
Business Asset Disposal Relief (BADR)
The new Chancellor has continued to reflect his predecessor’s actions, by further diluting the extent of this capital gains tax relief for business owners. From the once heady days of a £10 million lifetime limit in 2011, it was reduced to £1 million in 2020 and is now falling to £500,000 from 6 April 2027. The maximum tax relief available is therefore now just £30,000, compared to £1.8 million when it was at its highest.
