Was the 2026 Budget a love letter to entrepreneurs?

John Healey had warm words for Britain’s entrepreneurs in the Commons yesterday. “I know what starting a company takes,” he told the House. “I know starting a company means taking a risk. Often leaving a secure job to build something that there's no guarantee will work.”

When business founders take that risk and help “create wealth for Britain”, he continued, that success should be recognised to “keep those people here to invest again”.

“This is how we make Britain the place where the companies of the future are built,” he said.

In practice, this meant a series of measures announced to support and encourage entrepreneurs, the flagship policy being a new “founders’ relief” on capital gains tax: a reduced 10% CGT rate on up to £10 million of lifetime gains, effective from 6 April 2027.

It was, suggested one Treasury adviser, a “love letter to entrepreneurs”.

But was it sincere?

The topline sounds appealing: A 10% rate of CGT for founders and significant early investors in “high-growth, innovative UK companies” applying to qualifying disposals of shares, up to a lifetime limit of £10 million of gains per individual.

As ever, though, it’s the details rather than the headlines that tell the story. The Treasury has published a technical consultation on how the relief will work in practice, but as currently proposed, the qualifying conditions are significantly restrictive.

If it is a love letter, it’s hard to see who it’s addressed to.

To qualify for the new relief, an individual must pass several tests:

• They must own at least 25% of the ordinary share capital of the business when the transaction commences

• They have to have owned shares or securities in the company for at least five years before the disposal (although the relief will apply to all shares disposed of by a qualifying individual and is not restricted to shares acquired when the company was founded)

• They must have been a UK resident for five continuous tax years before the disposal

The business, meanwhile, must be a UK trading company (as with the Enterprise Investment Scheme), therefore excluding property and financial services, for example. It must also have a turnover of at least £10 million and 15 full-time staff in the last accounting period. It’s also got to fulfil at least two out of three “growth and innovation conditions”:

• 25% compound growth in turnover across three consecutive periods in the ten years before the sale

• The same 25% growth in headcount; or

• £1.5 million of R&D spend

That already significantly reduces the scope, but there are further restrictions, too. Strikingly, the relief as currently proposed insists that, to qualify, the company continues the same trade for which it was originally established. That doesn’t just add a further hoop to jump through, for what would already be among the most heavily conditioned tax reliefs in the UK, but seems to actively work against its goal of incentivising entrepreneurs to deliver growth, employment and innovation.

The condition is aimed at preventing abuse but would perversely discourage fast-growth businesses from pivoting or branching out to respond to changing market conditions or new opportunities, perhaps unlocked by developments in technology, for example.

For those who do qualify, this will be a valuable relief, but it’s a niche market. The Red Book forecasts that the relief will cost the government £260m in 2027/28, dropping to £180m in 2028/29 before rebounding the following year and increasing in the subsequent years to reach £300m in 2031/32: £1.3 billion over the five years forecast.

That’s not nothing, and would be a welcome, if overly complicated and restrictive, additional relief to capital gains tax. However, it’s introduced alongside a reduction to business asset disposal relief (BADR), which has far broader appeal (and the £10m lifetime limit for founders’ relief will be reduced by amounts claimed under BADR, as well as investors’ relief).

The reduction in the lifetime limit for BADR, from £1m to £500,000 for disposals made on or after 6 April 2027, will hit far more business owners than founders’ relief will help. The latest cut continues a long trend that has seen the lifetime limit cut from £10m to £1m in 2020 and the applicable CGT rate rise from 10% to 18%. With the latest cut in 2027, it means potential CGT savings for BADR claimants have fallen from £1.8 million to just £30,000.

The latest reduction is forecast to boost Treasury revenues in the years to 2031/32 by £1 billion – not far off the benefit founders’ relief is expected to bring. Add in other changes announced at the Budget, such as reforms to writing down allowances (effectively the biggest revenue raiser over the forecast period after HMRC measures to close the tax gap), and the founders’ relief, as proposed, looks even less generous.

Of course, something is better than nothing. Given the fiscal constraints on the Chancellor and support for more radical and costly increases to CGT from some Labour front benchers, it could have been much worse. Moreover, the consultation on founders’ relief suggests the Treasury recognises some of the flaws in the proposed design and may be open to addressing them. For now, though, as far as love letters go, the 2026 Budget is unlikely to leave many entrepreneurs starry-eyed.

The latest reduction is forecast to boost Treasury revenues in the years to 2031/32 by £1 billion – not far off the benefit founders’ relief is expected to bring. Add in other changes announced at the Budget, such as reforms to writing down allowances (effectively the biggest revenue raiser over the forecast period after HMRC measures to close the tax gap), and the founders’ relief, as proposed, looks even less generous.

Of course, something is better than nothing. Given the fiscal constraints on the Chancellor and support for more radical and costly increases to CGT from some Labour front benchers, it could have been much worse. Moreover, the consultation on founders’ relief suggests the Treasury recognises some of the flaws in the proposed design and may be open to addressing them. For now, though, as far as love letters go, the 2026 Budget is unlikely to leave many entrepreneurs starry-eyed.

Approval code: PCTS102660