CLAYOCRAFT INSIGHTS · EXPERT ADVICE
What UK founders should document before relying on a proposed tax relief, and which questions require specialist advice.
The headline rate is not the whole story
The UK’s Budget 2026 introduced a proposed Founders Relief that could apply a 10% Capital Gains Tax rate to up to £10 million of qualifying lifetime gains per individual. HM Treasury launched a technical consultation on 28 October 2026, and the government’s stated operative date is 6 April 2027 for qualifying disposals. This is not a blanket tax reduction for everyone who has founded a company. The conditions described in HMRC’s policy paper are demanding, and some details remain subject to the legislative process. Founders considering an exit should treat the announcement as a reason to organise records and seek specialist advice, not as confirmation of eligibility. A headline rate without an eligibility review can distort negotiations and financial planning.
Separate the proposal from enacted law
The government has published a policy description and consultation, with legislation intended through the Finance Bill process. A technical consultation is an invitation to test and refine implementation details, not a final binding determination for a particular shareholder. Before modelling an exit, an adviser should confirm the current law, any amendments and the date of the proposed disposal. Maintain a version-controlled source file showing which official document informed each assumption. If a board presentation uses the 10% rate, label it as a conditional scenario rather than the company’s guaranteed outcome. Tax planning is particularly sensitive to timing, residency, share history and transaction structure. A commercial consultant can organise evidence and project work, but a qualified UK tax adviser should interpret the law and approve the actual treatment.
Start with the founder’s original share position
HMRC’s October policy paper proposes that an individual must have held 25% of the company’s ordinary share capital when the trading activity for which the company was formed, or preparation for that trade, began. It also describes a minimum holding period of five tax years and a continuous UK residence requirement of at least five tax years before disposal. These are not details that can always be reconstructed from the current cap table. Early incorporation documents, allotments, shareholder agreements, option exercises and historic ownership records may matter. Build a chronology of ownership events and identify gaps before an exit process begins. Do not assume that an informal founder title proves the required equity history. A specialist should review changes in share classes and corporate reorganisations against the final rules.
Check the company’s trading and UK presence
The proposal describes requirements for the company to fall within UK Corporation Tax, maintain substantial UK presence over the relevant periods and continue the trade it was established to pursue without a major change in nature. It also refers to restrictions for substantial non-trading activities and excluded sectors. A company that has changed business model several times should not simply assume continuity. Prepare an evidence file containing accounts, corporate tax records, business descriptions, board minutes and material transaction documents. Explain acquisitions, disposals and changes in operations clearly. Property development, financial services and land dealing are among the sectors identified as excluded in the policy paper. Whether a particular business is caught by an exclusion requires professional analysis, not a marketing article or automated questionnaire.
Understand the scale thresholds
HMRC’s proposal includes turnover of at least £10 million and at least 15 qualifying full-time equivalent employees in the accounting period ending in the year before disposal. It also proposes that the company meet at least two of three further conditions linked to turnover growth, employee growth and qualifying research and development. These are precise tests, not a general statement that the business is innovative. A founder should ask finance and HR teams whether the necessary period-by-period evidence exists. Accounting definitions, employee calculations and group structures can affect the analysis. An apparently strong growth story may not meet the technical criteria. Conversely, a company with the right documentation may be able to assess its position more efficiently. Avoid presenting any single revenue figure as sufficient proof of eligibility.
Keep evidence for the growth tests
The proposed turnover-growth test refers to average compound growth of 25% across three consecutive accounting periods within the ten years before disposal, with a starting turnover threshold. The employee-growth test also uses a 25% growth measure and a starting full-time equivalent employee threshold. The research and development route refers to qualifying expenditure and claims meeting specified conditions. Finance teams should preserve reconciled annual accounts, the underlying turnover calculations, payroll or HR records and evidence supporting relevant R&D claims. Do not backfill numbers from a sales dashboard and assume they equal the statutory measures. Document which three-period window is being examined and why. A tax adviser should check the final wording and the appropriate treatment of shortened accounting periods or reorganisations.
Avoid confusing founders relief with other reliefs
The new proposal interacts with Business Asset Disposal Relief and Investors Relief. HMRC states that claims to those reliefs from 6 April 2027 would reduce the lifetime limit available for Founders Relief. This makes the order and timing of disposals important, particularly for people who hold interests in more than one business. Do not compare headline rates in isolation or assume that every pound of gain can be allocated to whichever relief appears most attractive. A personal tax adviser needs to review the shareholder’s complete position, residence history, previous claims and planned transactions. The company can help by providing accurate ownership and financial records. The founder’s personal tax return and claim remain a separate responsibility.
Create a board-level evidence register
A practical evidence register should identify the condition being tested, the supporting document, the period covered, the document owner, the reviewing adviser and the unresolved question. Use secure storage because shareholdings, remuneration and transaction plans can be confidential. Set retention and access rules with the legal and tax teams. Avoid a shared spreadsheet that circulates personal tax details to every project manager. Where the business has several founders, separate individual conditions from company-level tests so one person’s eligibility is not assumed to establish another’s. Include a decision log recording the advice received and the source version used. This helps management understand what is established, what is uncertain and what still needs work before any disposal.
Model multiple transaction scenarios
An exit model should distinguish the commercial value of the transaction from the after-tax proceeds to a particular shareholder. Create a base scenario under currently applicable rules, a conditional scenario under the proposed relief and a scenario where eligibility fails. Use actual share history, professional tax calculations and documented assumptions. Avoid inserting a single optimistic rate into a headline valuation. Consider the timing of consideration, deferred payments and transaction costs with specialist advisers. The purpose of scenario planning is not to predict legislation or negotiate on the founder’s behalf. It is to prevent a board or shareholder from making a major decision based on one untested assumption. Revisit the model when official rules change.
Use the consultation period constructively
HM Treasury’s technical consultation asks for views on the proposed individual, company, growth and innovation conditions, as well as administration. The official policy page identifies the consultation process and timetable. A company or adviser with relevant experience can consider responding with specific examples of unclear definitions or unintended consequences. A useful response should distinguish evidence from advocacy and should not imply that the government has already accepted a proposed amendment. Keep the consultation submission separate from the company’s eligibility analysis. Participation may help clarify future policy, but it does not confer a tax benefit or guarantee the final wording.
A sensible ninety-day preparation plan
In the first thirty days, gather incorporation, share, residence and trading-history records and appoint a qualified tax lead. During the next thirty days, reconcile turnover, employee and R&D evidence for the relevant periods and document unresolved conditions. In the final month, review the position with advisers, prepare conditional transaction scenarios and assign owners to missing evidence. Do not rush a disposal because a blog headline suggests a favourable rate. If a company is not close to an exit, the same recordkeeping can still improve investor diligence and governance. The most useful immediate action is to make historical information retrievable before a buyer, accountant or regulator requests it under time pressure.
Where operational support fits
ClayoCraft does not replace regulated tax or legal advice. Its business solutions can support the operational work around a complex review: document collection, process mapping, evidence ownership, data-room preparation, stakeholder follow-up and reporting. A growing business often has the underlying records scattered across finance, HR, company secretarial and founder inboxes. Bringing those records into a controlled workflow allows professional advisers to spend more time on substantive questions. The same discipline can support future fundraising, due diligence and ownership transitions even if the proposed relief never applies. A free efficiency review can identify which recordkeeping and approval handoffs need improvement before an exit project begins.
Evidence checklist
| Test | Records to prepare |
|---|---|
| Founder equity history | Incorporation and allotment records |
| Residence and holding period | Personal records for adviser review |
| Company scale | Audited accounts and employee records |
| Growth or innovation | Period calculations and R&D claim evidence |
| Transaction planning | Draft documents and professional advice |
Frequently asked questions
Is every UK founder eligible for the 10% rate?
No. The proposal contains ownership, residence, holding-period, company, growth and other conditions. Eligibility must be checked against final legislation and individual facts.
When is the proposed relief intended to begin?
HMRC’s 28 October 2026 policy paper states an operative date of 6 April 2027 for qualifying disposals, subject to the legislative process.
Can ClayoCraft determine a founder’s tax liability?
No. A qualified tax adviser should assess the law and personal position. ClayoCraft can support document organisation, evidence workflows and operational coordination.
Sources: HMRC policy paper, 28 October 2026; HM Treasury consultation, 28 October 2026. The proposal predates the preceding 24-hour window. This is general information, not individual tax advice.