Budget 2026: opportunities and challenges for entrepreneurs
Written by
John Healey’s ‘breathing space’ October 2026 Budget included some, albeit modest, measures to encourage entrepreneurship and innovation in the UK. Here, we consider the key provisions which will impact UK entrepreneurs and founders.
Business Asset Disposal Relief (BADR)
The lifetime limit for BADR, formerly known as ‘Entrepreneurs’ Relief’, will be reduced from £1 million to £500,000 for qualifying disposals made on or after 6 April 2027. The scheme reduces the Capital Gains Tax bill when entrepreneurs sell, close or dispose of all or part of their business, or sell their shares. The existing 18% CGT rate remains unchanged, but the Budget reduces the maximum tax saving available through the relief from £60,000 to £30,000.
The original Entrepreneurs Relief was introduced in 2008 with a lifetime limit of £1 million and a preferential CGT rate of 10%. To claim, you had to be an officer or employee and hold at least 5% of the ordinary shares for at least a year. Subsequent Budgets increased the lifetime limit to £10 million and the holding period to 2 years. However, in 2020, the limit was reduced to £1 million again and the CGT rate has been increased to 14% in 2025 and 18% in 2026.
It would appear that BADR is being phased out. Certainly, no one will be setting up a business now with BADR in mind. There is a window for people who qualify to claim the extra £30,000 before 6 April 2027.
New Founders’ Relief
The Government has announced a new Founders’ Relief, which offers a 10% CGT rate on qualifying gains of up to £10 million over an individual's lifetime. It will apply to qualifying share disposals from 6 April 2027. The relief is aimed at founders and early investors in high-growth, innovative UK companies.
Proposed eligibility conditions include an initial shareholding of at least 25%, a minimum 5-year shareholding period and 5 continuous years of UK tax residence before disposal. The company must achieve a turnover of at least £10 million in the year of disposal and employ at least 15 full-time staff. In addition, it must satisfy at least two of three demanding proposed tests centred around annual turnover, growth in qualifying employees and a threshold for research and development expenditure.
The potential benefits of Founders’ Relief are therefore similar to Entrepreneurs’ Relief in its heyday. A founder realising a qualifying £10 million gain could pay £1 million in CGT at 10%, compared with £2.4 million at the standard 24% rate. However, the conditions to be satisfied present a far higher hurdle to clear so it is likely that fewer claims will be made. HM Treasury has launched a technical consultation which is open until 30 November 2026.
Employee share schemes
The Budget also introduces changes to the Company Share Option Plan (CSOP) which is rebranded as the Enterprise Management Incentives (EMI2), intended to make employee share ownership more attractive and flexible. From 6 April 2027, the individual option limit will increase from £60,000 to £120,000 and the maximum exercise period under EMI2 will increase from 10 to 15 years.
The EMI exercise period following a disqualifying event will also increase from 90 to 180 days. In addition, companies arranging to become controlled by an Employee Ownership Trust will be able to retain access to EMI.
These changes should provide growing businesses with greater flexibility to attract and retain key employees, particularly those that have outgrown the traditional EMI eligibility limits.
Venture capital schemes
The Government has also announced improvements to the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) rules which are designed to simplify the operation of the schemes and provide greater certainty for investors.
The changes include allowing EIS relief on the qualifying portion of an investment even where the investment exceeds the relevant scheme limits, permitting SEIS and EIS or VCT investments on the same day, and ensuring that late payment by one investor does not affect the tax relief available to other investors. Changes will also be made to the calculation of withdrawn VCT tax relief and to interest charged where SEIS relief is withdrawn or reduced.
Comment
The Budget represents a mixed package for entrepreneurs. The halving of the BADR CGT relief will increase the potential tax burden on owners of established businesses, particularly for entrepreneurs whose companies do not meet the demanding conditions for Founders’ Relief.
The Founders’ Relief offers a significant incentive for founders building high-growth businesses, whilst the employee share scheme and venture capital changes should improve opportunities to attract talent and secure investment.
