Budget 2026: Founders' Relief, BADR, EMI and SEIS/EIS

The 2026 Budget and the government's response to its "Tax Support for Entrepreneurship" consultation, both published on the same day, bring the biggest shake-up of founder tax reliefs in years. Here's what's changing, when, and what it means for you. If you want to see the source documents :

• Budget: announced in the Budget 2026 document itself.
• Gov response: set out in the government's response to the Tax Support for Entrepreneurship consultation.

At a glance

1. Founders' Relief (new)

What it is: a new capital gains tax relief that lets qualifying founders and early investors pay 10% tax on up to £10 million of gains over their lifetime when they sell shares. (Gov response)

When: disposals from 6 April 2027. (Gov response)

Who qualifies: the relief is much more targeted than the old Entrepreneurs' Relief or BADR. There are two sets of tests: one for you and one for your company.

• You: you must have held a significant stake from an early stage and kept your shares for a sustained period before selling. The exact percentage and holding period haven't been published yet. (Gov response)
• Your company: it must meet minimum turnover and headcount levels, and pass at least two of three growth tests: turnover growth, headcount growth and R&D activity. (Gov response)

What's not included: you don't have to reinvest your gain to qualify. The government considered reinvestment-based reliefs and rejected them as too complex. (Gov response)

Still to be decided: the detailed qualifying conditions are going to a technical consultation.

What this means for you: if you're building a high-growth business, Founders' Relief could cut the tax on a big exit from 24% to 10%. Start keeping clear records of your shareholding history, turnover, headcount and R&D spend now. You'll need them to prove you qualify.

2. Business Asset Disposal Relief (BADR)

TLDR: the lifetime limit on gains taxed at the reduced BADR rate is halved from £1 million to £500,000.

When: disposals from 6 April 2027.

Other details:

• The BADR rate stays at 18%. Gains above the new limit are taxed at the main capital gains tax rate - typically 24%.
• The government estimates about three-quarters of people who claim BADR will still get relief on their whole gain.

What this means for you: if you expect gains between £500k and £1m and your company won't qualify for Founders' Relief, you'll pay more tax on sales from April 2027. This includes many employees with EMI options, whose shares can qualify for BADR. If a sale is already on the horizon, talk to your adviser about timing.

3. CSOP is renamed "EMI 2", with bigger limits

TLDR: none of these changes impact the current EMI scheme. It's a rename of the current CSOP and some polishes to that renamed scheme. If your employees can make use of EMI, it's still almost always going to be preferable to do that rather than using EMI 2.

The Company Share Option Plan (CSOP), the main tax-advantaged option scheme for companies too large for EMI, is being rebranded as Enterprise Management Incentives 2 (EMI 2). Its legal rules stay the same apart from the changes below.

• Higher limit: each employee can hold £120,000 of options, up from £60,000.
• Stacks with EMI: EMI and EMI 2 limits no longer count against each other, so one employee could hold up to £370,000 of tax-advantaged options in total (£250k EMI + £120k EMI 2).
• Longer to exercise: the maximum exercise period rises from 10 to 15 years.
• Unchanged: the three-year minimum holding period before exercise, and options must still be granted at market value (no discounts).
• When: expected from 6 April 2027, via Finance Bill 2026-27.

What this means for you: if you've outgrown EMI, or you want to give key hires more than EMI allows, EMI 2 is a much more useful tool than CSOP was. This helps scale-ups compete with the big tech companies for talent.

4. EMI

TLDR: EMI itself is largely unchanged: the £250,000 individual limit and the excluded trades stay as they are. Some (already announced) changes to report obligations, some tweaks around the edges.

The tweaks are:

• More time after a disqualifying event: if something happens that takes the company out of EMI (for example, it's acquired), employees will get longer to exercise their options and keep the tax benefits. The government response says this goes from 90 to 120 days
• Employee ownership: employees won't lose their EMI tax benefits when their company moves to an Employee Ownership Trust.
• Less admin: advisers report that the separate HMRC notification for new EMI grants will go for options granted from 6 April 2027, with options reported in the annual return instead.

5. SEIS, EIS and VCT

TLDR: There are no new investment limits this time. The EIS and VCT limit increases, and the cut in VCT income tax relief to 20%, already took effect in April 2026.

This year's changes are fixes that make the schemes more forgiving, which many founders will be delighted by:

• Going over an EIS investment limit will no longer mean losing all of the relief.
• SEIS and EIS/VCT investments can be made on the same day. This is a huge change and de-risks the 'dual round' scenario.
• One investor paying late will no longer affect other investors' relief.
• SEIS interest rules will line up with EIS.
• If VCT relief is withdrawn, it's withdrawn at the rate that applied when the shares were issued.

When: the VCT change applied to shares issued from 6 April 2026. Everything else applies to shares issued from 6 April 2027.

Not changing: company age limits won't be extended, the six-month long-stop date for Advance Subscription Agreements stays, and there will be no cap on fund fees.

Coming later: HMRC will work with industry to speed up advance assurance for straightforward cases, and on fee transparency for funds. It will also crack down on fee arrangements that divert money away from the companies being invested in.