The proposed individual conditions include requirements for the shareholder to: 

• hold at least 25% of the ordinary share capital, together with the required voting and economic rights, when the relevant trading activity or preparation for it commenced; 
• hold the shares or securities for at least five years before disposal; and 
• have been UK resident under the Statutory Residence Test for at least five continuous tax years before disposal. 

The 25% condition immediately makes the original ownership structure important. 

Four equal founders could potentially each satisfy a 25% test. Five equal founders, each holding 20%, would not. Different classes of shares, voting rights and economic entitlements could make the position considerably more complicated. 

This may also affect the familiar decision between giving a key individual equity at the outset and granting an EMI option. Options can offer significant commercial advantages because equity does not have to be given away immediately. But for an individual who genuinely is a co-founder and could hold the required 25% interest, the potential availability of a 10% CGT rate introduces another significant factor into that discussion. 

One encouraging feature of the consultation is that a founder does not appear to need to retain a 25% interest continuously until disposal. The proposed test focuses on the interest held when the trade, or preparation for it, commenced. 

That is commercially important. High-growth companies frequently need external capital, and dilution is a natural consequence. A requirement to maintain 25% throughout the company’s development could have made the relief unworkable for many of the businesses it is intended to support. 

The government also proposes that the relief can apply to all shares subsequently disposed of by a qualifying founder, rather than only the original shares held when the company started.

This could become one of the most important practical questions. 

The proposed 25% test is linked to the point when the relevant trading activity, or preparation for that trade, commenced. 

That sounds straightforward until applied to a real start-up. 

For example: 

• Does preparation begin when the founders start developing a product? 
• What if market research and product development take place before the company is incorporated? 
• What if an individual joins during the preparation stage but before the company actually begins trading? 
• What happens where an existing unincorporated business is subsequently incorporated? 

These questions matter because, if the 25% test is tested at a historic point and cannot subsequently be repaired, decisions taken well before anyone thinks about an eventual exit could determine whether relief is available many years later. 

The consultation does not yet provide all of this detail. 

It is not enough for the shareholder to qualify. 

The company must also satisfy conditions including being within the scope of UK Corporation Tax, having the required substantial UK presence, and being a trading company or the holding company of a trading group. 

It must have generated at least £10 million turnover and employed at least 15 qualifying full-time employees in the accounting period before disposal. Qualifying employees are proposed to work at least 35 hours per week and be paid at least the National Minimum Wage. Directors, contractors and agency workers would not count. 

That employee definition could produce significantly different outcomes between business models. A business relying heavily on contractors, directors and flexible working could have a substantial workforce but struggle with this particular condition.

In addition to the basic company conditions, at least two out of three growth and innovation tests must be satisfied. 

These concern: 

• turnover growth; 
• qualifying employee growth; and 
• qualifying R&D expenditure. 

The turnover and employee tests envisage 25% average compound annual growth over three consecutive accounting periods, within the relevant ten-year window. The turnover test starts from at least £10 million and the employee test from at least 15 qualifying employees. 

This potentially makes the timing of an exit important. 

A business might experience spectacular growth, mature and then plateau. If the high-growth period eventually falls outside the relevant look-back, an otherwise highly successful company could cease to satisfy the relevant growth condition. 

Planning ahead for an exit is nothing new. But Founders’ Relief could make that exercise more complex and longer-term, requiring founders to track not just whether their business qualifies, but how decisions made as it develops, and the timing of an eventual sale, could affect that position.

There is also an important unanswered question around acquisitions. 

Nothing currently published clearly restricts the turnover or employee growth tests to organic growth. That raises questions over whether businesses pursuing a buy-and-build strategy could count turnover and employees acquired with another business towards the growth tests. 

The answer could materially affect corporate strategy. It also interacts with another proposed condition: the company must continue the new trade for which it was established without a major change in that trade, while additional trades are proposed to receive treatment similar to excluded activities. 

Precisely how these provisions will apply to diversified or acquisitive groups will therefore be important.

The requirement that the company continue its original trade with “no major change in the nature of the trade” potentially creates another difficulty. 

Successful businesses frequently evolve. 

A technology company might develop one product, discover that another application has greater commercial potential and pivot. A service company might substantially change its offering as it scales. 

Determining the boundary between: 

• expansion of the existing trade; 
• a major change in the nature of that trade; and 
• commencement of another trade 

could become critical. 

It is worth noting that HMRC’s existing approach to companies carrying on multiple trades generally sets a relatively demanding threshold before activities are regarded as separate trades. It is not clear whether these established principles would be applied or how they will interact with the requirements of this new relief.

The proposed R&D condition creates a new link between a company’s tax position and a shareholder’s personal CGT relief. 

It is not enough for the company simply to undertake innovative activity. The proposal requires at least £1.5 millions of qualifying R&D expenditure for which the company meets the conditions for relief and has actually claimed it, for periods ending within the three years before disposal. 

That creates a new dynamic. 

A decision previously considered primarily in terms of the company’s Corporation Tax position could also determine whether a founder obtains a potentially very valuable personal tax relief. The eligibility requirements remain the same, but the interests involved become wider. 

For example, the company and its shareholders may place different weight on the costs, evidence requirements and uncertainty involved in pursuing a claim. Directors will still need to make decisions in the company’s interests, while recognising that those decisions may have significant consequences for individual shareholders. 

The position becomes particularly important after a sale. A founder may face additional CGT and interest following a successful HMRC challenge of a pre-completion claim, while no longer controlling the company or its response to HMRC. Sellers relying on the R&D condition may therefore need appropriate SPA provisions covering access to information, involvement in an enquiry and responsibility for costs. The consultation proposes giving individuals a statutory right to request information from the company to help establish their entitlement to relief. That is helpful, but does not obviously resolve all these issues. 

There is also a lifecycle question. Many innovative businesses incur their heaviest R&D expenditure during early product development, before reaching significant scale. By the time the company meets the minimum size conditions, that expenditure may fall outside the three-year window, leaving it dependent on both the turnover and employee growth tests. 

The measurement window could also influence investment decisions. For example, some genuine R&D projects may be commercially worthwhile without being essential to the company’s immediate plans. Where there is flexibility over whether, when or at what scale those projects proceed, a founder’s potential CGT relief could become an additional consideration alongside the commercial case for the company. 

For founders, R&D claims could therefore become an exit planning issue, not just a Corporation Tax matter, with consequences that continue after the sale.

The consultation appears to envisage relief working across different ownership structures and surviving commercially driven reorganisations, although the mechanics remain unclear. 

Take a simple example:

A founder owns 100% of TradeCo from commencement. Several years later a new HoldCo is inserted above TradeCo by way of a share-for-share exchange. The founder eventually sells HoldCo.

Ordinary CGT reorganisation principles can provide continuity for the replacement shares, which should help with the five-year shareholding requirement. 

But Founders’ Relief contains something more unusual: a historic founder condition, based on the individual’s ownership when TradeCo’s trade or preparations for it commenced. 

It is not yet clear precisely how that historic condition will carry across from TradeCo to a subsequently created HoldCo. 

More complicated mergers, acquisitions and group reorganisations will pose further questions. 

It is also not clear how the rules may apply where a founder holds their interest through a personal company from the outset. For example, two founders might each own a personal holding company which holds 50% of a joint venture trading company. 

It is not yet clear whether Founders’ Relief will include provisions comparable to BADR’s joint venture rules, allowing the underlying trading activities to be taken into account when assessing the founder’s holding company. 

Both examples highlight the need for clear rules on how relief applies where the founder owns the trading business indirectly.

Perhaps the most important practical lesson is that Founders’ Relief does not look like a relief that should first be considered when an SPA lands on someone’s desk. 

Qualification could depend on events and decisions surrounding: 

• incorporation and commencement of trade 
• original equity ownership and share rights 
• employee share incentives 
• funding rounds and dilution 
• turnover and accounting recognition 
• workforce composition 
• R&D expenditure and claims 
• acquisitions and diversification 
• group reorganisations 
• the timing and structure of an eventual exit 

That potentially creates a much longer planning runway than businesses have traditionally associated with CGT relief on an exit. 

For existing and aspiring founders whose businesses could fall within the new regime, it is worth understanding the proposed conditions early, keeping evidence of how they are met and considering how today’s decisions could affect relief on a future sale. 

There is considerable value at stake. There is also considerable detail still to come. 

Founders’ Relief remains subject to consultation, which closes on 30 November 2026, with legislation intended for Finance Bill 2026/2027 and relief applying to qualifying disposals from 6 April 2027.