The Chancellor is facing criticism for seeking to incentivise high-growth business founders with a new tax break, while simultaneously tightening relief for those who choose to sell their business.
Dubbed ‘Founders’ Relief’, John Healey used his maiden Budget to unveil a new capital gains tax relief for founders of, and significant early investors in high-growth, innovative UK companies.
The relief will apply a 10% rate of CGT to qualifying disposals of shares, up to a lifetime limit of £10 million of gains per individual.
To qualify for the tax perk, founders will need to have held at least 25% of the business when its trade began, held their shares for at least five years and been UK resident for five continuous tax years before selling. The company itself must also have reached at least £10 million of turnover and 15 full-time employees.
Jonathan Moyes, head of investment research at Wealth Club, said: “Founders’ Relief is a welcome recognition that if Britain wants entrepreneurs to take risks, build businesses and create jobs here, there needs to be a meaningful reward for success. A 10% capital gains tax rate on up to £10 million of qualifying lifetime gains certainly grabs the attention.”
However, the Chancellor has come under fire for dangling a carrot with one hand and taking with the other, following the announcement that the lifetime limit for Business Asset Disposal Relief has been halved from £1 million to £500,000 from April 2027.
Business Asset Disposal Relief allows business owners to pay the lower rate of CGT of 18% instead of 24%.
The Treasury said the decision will affect just one in four users of BADR, but the move has been criticised by industry commentators.
Moyes said: “For business owners who do not meet the extraordinarily demanding criteria for the new Founders’ Relief, this is another significant blow to hard working entrepreneurs across the country.
“The Founder’s Relief provides a glossy headline, but the halving of Business Asset Disposal Relief will add further weight to the burden already borne by the nations’ entrepreneurs. Britain needs to reward entrepreneurs across the spectrum, not just the handful who build the next unicorn.”
Tina McKenzie, national chair of the Federation of Small Businesses, commented: “It is incredibly unclear what difference his plans for Founders’ Relief compared to entrepreneurs’ relief, officially called Business Asset Disposal Relief, will make. The Chancellor must urgently clarify whether he intends to tax or back those who spend a lifetime running and growing successful businesses.”
Ed Wood, financial planning director at Rathbones, said: “The announcement of a new Founders’ Relief could provide a significant incentive for individuals to build and grow businesses in the UK. However, the small print will matter. The relief appears designed specifically to reward high-growth businesses, meaning some founders could be disappointed to discover their company does not qualify.
“While the Chancellor gave with one hand, he took away with the other by reducing the maximum gains eligible for Business Asset Disposal Relief. For many business owners, that means the Budget is something of a mixed bag. The biggest rewards are being targeted at those able to meet the government’s definition of a high-growth business, while the existing relief available to the broader population of entrepreneurs is being scaled back.”
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