Budget Gives High-Growth Founders A Boost

Ed Wood, Financial Planning Director at Rathbones, outlines what the Budget announcements could mean for business owners

Founders Relief offers a major incentive for high-growth businesses

“The announcement of a new Founders Relief, reducing capital gains tax to 10% on gains of up to £10 million when an entrepreneur sells their business, could provide a significant incentive for individuals to build and grow businesses in the UK."

“From the 2027/28 tax year, the relief could deliver a potential tax saving of up to £1.4 million. 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."

“The Government’s consultation suggests businesses would need to meet two out of three potential criteria: 25% annual turnover growth across three consecutive years, 25% average annual headcount growth over the same period, or £1.5 million of qualifying R&D expenditure.”

Business Asset Disposal Relief reduction takes some of the shine off

“While the Chancellor gave with one hand, he took away with the other by reducing the maximum gains eligible for Business Asset Disposal Relief (BADR) from £1 million to £500,000."

“BADR reduces the capital gains tax rate from 24% to 18%, so halving the lifetime limit reduces its maximum potential benefit from £60,000 to £30,000 per person."

“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.”

A broadly revenue-neutral reshuffle

“Ultimately, this looks less like a broad tax giveaway and more like a reshaping of incentives towards high-growth businesses."

“The Government’s own figures forecast the two measures to be broadly revenue neutral by 2030/31, with the £285 million cost of Founders Relief almost entirely offset by the £280 million raised from reducing BADR."

“The direction of travel is clear: the Government wants to put greater tax incentives behind entrepreneurs who can demonstrate sustained growth, job creation or significant investment in research and development.”