The Budget, read for start-ups

A better deal at exit, if you qualify

The biggest change for start-ups is in how founders are taxed when they sell. It helps the companies that pass a new test, and costs a little for those that do not.

The Chancellor, John Healey, announced a new Founders’ Relief. It charges Capital Gains Tax (the tax on the profit when you sell shares) at 10% on up to £10m of gains over a founder’s lifetime. The usual rate is 24%. It applies to sales on or after 6 April 2027.

In his speech, Healey said it was for “the founders of our most successful firms”, to keep them in Britain “to invest again”. The draft conditions bear that out.

It is not for everyone. The Treasury’s technical consultation sets out draft conditions, and they are demanding. A founder must meet all of these:

• You founded it. You held at least 25% of the ordinary shares when the company started trading, or started preparing to. Because it is measured at the start, being diluted by later funding rounds should not count against you.
• You held on. You have owned the shares for at least five years, and been resident in the UK for the five tax years before the sale.
• The company is a sizeable UK trading business. At least £10m of turnover and at least 15 full-time employees in the year before the sale. Directors, contractors and agency staff do not count towards the 15. It must still be doing the trade it started with, have a substantial UK presence, and not be in the activities already shut out of the EIS scheme, such as property development or financial services.

On top of that, the company must pass two of three tests:

• Turnover growth: an average of 25% a year over three consecutive years, at some point in the ten years before the sale, starting from at least £10m. Going from £10m to about £20m in three years would do it.
• Headcount growth: the same 25% a year in full-time staff, starting from at least 15.
• Innovation: at least £1.5m of research and development spending that qualified for R&D tax relief, with claims made in the three years before the sale.

Put simply, the relief is for founders of companies that are already large and grew fast. A founder who sells a £5m-turnover company, or sells within five years, will not qualify, however successful the business.

What about investors? The consultation says the relief is for “founders and significant early investors”. But the only route in is that 25% stake when trading began, which few investors hold. If you backed a company at the very start with a large stake, you may qualify; most later investors will not.

These are draft rules, and they may change. The consultation asks whether they pick out the right founders, and whether there is a better test of innovation than R&D spending. It closes on 30 November 2026, and the law comes later in this year’s Finance Bill. Three more things to know:

• The £10m is shared. Claims under the older relief, or under Investors’ Relief, from 6 April 2027 come off it. The draft does not say whether claims made before then count.
• It can be taken back. If HMRC later cuts the company’s R&D claim and a condition you relied on fails, you lose the relief and pay the tax, with interest.
• You will need the company’s books. Founders, especially those who have left the company, will need turnover, staff and R&D figures to claim. The government wants to give them a legal right to ask the company for them.

The Treasury has not said how many founders it expects to qualify. It does say what the relief will cost: between £180m and £300m a year from 2027–28, reaching £300m by 2031–32. Halving the older relief raises a similar sum in the later years, about £305m by 2031–32. In effect, over time, the founders who do not qualify pay for those who do.

For founders who do not qualify, the older relief gets smaller. Business Asset Disposal Relief, which charges 18% on the first slice of gains, will cover £500,000 in a lifetime instead of £1m. Healey said that means “no change for 3 in 4 claimants”, since most sales are small.

The rate on everything above those limits stays at 24%. There had been reports that it would rise to match income tax. It did not, and the Startup Coalition said the Chancellor “held the line”.

The gap is stark. On a £5m sale, a founder who qualifies pays £640,000 less than today. One who does not pays £30,000 more. That £30,000 is the most anyone loses from the smaller relief, however big the sale.

We have been here before

A 10% rate on up to £10m of a founder’s gains is not new. It is what Entrepreneurs’ Relief offered for almost nine years. What is new is how few people can get in.

Entrepreneurs’ Relief began in April 2008: 10% on the first £1m of lifetime gains, for anyone who held 5% of the shares and votes in a trading company and worked there as an officer or employee for a year. The limit then rose three times, to £2m and £5m in 2010 and £10m in 2011, before it was cut back to £1m in March 2020 and renamed Business Asset Disposal Relief that April. Its rate rose to 14% in April 2025 and 18% this April. From April 2027 its limit halves.

The older relief was popular and expensive. When it was announced in 2008 it was expected to cost about £200m a year; by 2017–18, HMRC estimated, it was costing £2.7bn. In 2015–16, 52,000 people claimed it, but about 6,000 of them, with gains over £1m, took 69% of the gains relieved. The Resolution Foundation called it “expensive, regressive and ineffective”, noting that, in HMRC’s own survey of people who claimed it, more said they had not known about it than said it changed what they did.

Founders’ Relief reads like an answer to that criticism. It keeps the generous rate and limit but fences them round with tests of size, growth and innovation, so only a narrow group of fast-growing companies qualifies. The Treasury expects it to cost £180m to £300m a year from 2027–28, much the same as the £200m a year Entrepreneurs’ Relief was expected to cost when it began in 2008.

The nearest precedent for a tightly drawn relief is not encouraging. Investors’ Relief, the 10% rate for outside investors added in 2016, is one the Office of Tax Simplification recommended abolishing it in 2020. When its limit was cut from £10m to £1m in October 2024, the government expected fewer than 50 people a year to be affected. A relief that few can reach is cheap, but it also changes little. Whether Founders’ Relief lands between the two is what the consultation will decide.

Hiring and keeping people

Share options get more generous, non-compete clauses are on the way out, and hiring from abroad gets a little easier. The wage floor goes up again.

• EMI2, for companies too big for EMI. EMI, the main tax-free share option scheme, is only open to smaller companies. The fallback for bigger ones, CSOP, is being renamed EMI2. From 6 April 2027 the options each employee can hold double from £60,000 to £120,000, and can be exercised for up to 15 years. The current £250,000 cap across EMI and CSOP combined goes too, so one employee can hold up to £370,000 across both. The Startup Coalition says scaling companies “previously quickly hit a cliff-edge”.
• Smaller fixes to EMI. Staff get 180 days to exercise after an event that ends the scheme’s tax benefits, and new grants are reported in the end-of-year return instead of a separate form. Both from 6 April 2027.
• Non-compete clauses. The government will legislate so that they no longer stop start-ups and scaling firms from hiring. It will consult “shortly” on the wider use of restrictive practices in contracts, and set out its full position in early 2027. If your employment contracts rely on restrictions like these, that consultation matters.
• Lower salary bars for visas. From spring 2027, the job-specific salary rate for a sponsored worker in most jobs falls from the median for that job to the 25th percentile, meaning a quarter of people in the job earn less. The general minimum salary still applies and will be uprated, and workers must meet the higher of the two. The discount for PhD holders goes. From 2027, the government plans to give the highest-skilled sponsored workers up to six months to find a new job if they lose theirs, depending on how long they were in the old one.
• Wider routes for graduates and researchers. The High Potential Individual visa opens to graduates of the world’s top 150 universities, and the Graduate visa extends to two years for graduates of universities with good records on compliance and jobs. More R&D-heavy companies in regions across the UK will be able to sponsor researchers on the Global Talent visa by spring 2027.
• A higher wage floor. The National Living Wage rises 3.9% to £13.21 an hour from 1 April 2027. That adds £910 a year to a full-time salary at the bottom.
• Help for very new founders. Healey said a new Young Entrepreneurs Allowance “will cover a year of living costs” for young founders. The Budget document is more cautious: it is a pilot in England, giving successful applicants “support towards” their living costs in their first year. The prospectus says the pilot starts “shortly”, but gives no amount, age limit or start date. The trading allowance, the income you can earn tax-free from a side business, triples to £3,000 from April 2027.
• A way for staff to sell. Employees with EMI or EMI2 options can sell their shares on PISCES, the new market where private companies let shareholders trade at set times, and keep the schemes’ tax benefits. Trades there pay no stamp duty. If your staff want some cash before an exit, this is the route the government is pointing to.
• Pay in job adverts. Healey said he had heard calls for pay transparency on job adverts, and that the government “will act soon” to make sure women are paid and promoted fairly. No detail yet, but if you advertise roles without salaries, expect that to change.

More money for the funds that back you

The British Business Bank, the state-owned bank that invests in venture funds and backs lending to small firms, gets £5bn more to work with, taking its total to £30.6bn. That is part of what Healey called “a further £20.4bn” for it and the National Wealth Fund. Most of it reaches a start-up through funds, not directly.

• £1.4bn more for equity funds backing high-growth companies, and £450m for a new venture debt product: loans to companies that have raised equity, so founders can borrow without giving up more shares. Defence and dual-use companies are named as eligible.
• Lending to companies whose value is in ideas. The bank has made £500m of guarantees available so that lenders can back businesses rich in intellectual property, such as patents and software, and committed up to £150m to a new Northern Scale-up Fund.
• £6.5bn more lending to small firms over this Parliament, confirmed from the summer’s Mansion House speech, through the bank’s Growth Guarantee Scheme, which backs bank loans to small businesses.
• Up to £5bn for defence, dual-use and resilience. The National Wealth Fund and the British Business Bank will invest and lend it over four years, and a new taskforce will look at bringing in private money. Dual-use means technology with both civilian and military uses, like drones or secure communications.
• One front door for scale-up support. Existing programmes come together under Scale UK, with a pilot, Scale UK – Connect, giving advice, investor introductions and help abroad to 200 high-growth firms. London & Partners leads it, with local partners in Greater Manchester, the West Midlands, Scotland, Yorkshire and the South West.
• For spin-outs and researchers. £25m for UKRI Venture Doctorates, up to £16m for proof-of-concept funding, and £1bn over four years for priority innovation clusters.
• Women founders. A new scale-up programme for women founders, and two voluntary standards on fairer investment and hiring in tech. Healey said the British Business Bank “will double its commitments to women-led businesses and funds to £200m”. The Budget document puts its current pipeline of commitments to women-led funds at over £100m.
• Easier investor tax reliefs. Technical changes will make EIS and SEIS, the schemes that give your angel investors tax relief, easier to use. HMRC will look at improving advance assurance, the up-front check that a company qualifies. Getting it is often slow, and slowness can hold up a round. Guidance on excessive fees in these schemes will be tightened.
• Pension money, eventually. The government expects the Mansion House Accord, a voluntary pledge by pension providers, to put around £25bn more into UK private markets, which include venture and growth funds. That matters because, according to the prospectus, 74% of UK venture investment by value came from abroad in 2025. Seventeen large workplace pension providers aim to put at least 10% of default funds into private markets by 2030, at least half of it in the UK. The Financial Conduct Authority will consult from 12 November 2026 on letting pension funds pay performance fees, which venture funds usually charge. A cut to stamp duty on shares is “under review”, but not promised.
• Savers kept on side. The cash ISA limit stays at £20,000; the planned cut to £12,000 is reversed. A “Starter ISA” to reward first-time stocks and shares investors is promised, with no detail yet.

AI, quantum and selling to government

Most of the AI package was announced last week. The Budget added more for buying from AI companies, and a new route in for quantum firms.

• “Over £700 million” for AI. About £500m goes on security: £120m for the AI Security Institute, £165m for biosecurity, £154m for cyber defence and £40m for a new National Agentic Security Unit, which will respond when AI agents (software that acts on its own) go wrong. New since last week are that unit, £20m more for the R&D procurement scheme (£80m, against £60m in the package), £24m to harden public-sector IT with AI tools, and a £60m AI Pathfinder Fund for fixing problems across government.
• A bigger buyer for AI products. The Sovereign AI Unit gets £140m: £60m more for its fund to invest directly, with a new focus on robotics and other “physical AI”, and an extra £80m for its R&D procurement scheme. That scheme pays AI companies to solve set problems in health and care, AI security and defence. The Startup Coalition wants it to have “real teeth”.
• A new route in for quantum. A £138m procurement fund will buy quantum sensors and positioning, navigation and timing technology (alternatives to GPS), starting with £30m from the Ministry of Defence. Products that work can move into defence programmes. Public-service challenges, such as finding defects in bridges, are included.
• Chips. The government has raised its advance commitment to buy new British AI inference chips (the chips that run AI models once trained) from £100m to £150m, put £18m into a chip design academy led by the University of Edinburgh, and offer AI hardware companies one joined-up route to public finance.
• A deal for data centres. A new Data Centre Covenant sets tests for big data centres seeking government help: pay their own energy costs, invest in the local area, publish water and energy use, and favour UK suppliers and British AI hardware. In return, a new ministerial unit will speed up their grid connections. Healey framed it as keeping “our most sensitive data”, such as NHS and military data, under British control. He said critical sites could build their own power “where necessary” while they wait; the Budget document limits that to “exceptionally strategic” projects.
• Buying British. Healey said he is expanding challenge-led procurement, where government sets a problem and pays firms to solve it, “so government can be the first customer for innovative firms”. A new definition of a “UK supplier” is due by January 2027. The government says current definitions let in firms with “little more than a UK post box”. A new National Procurement Policy Statement, the rules every public buyer must follow, goes to Parliament in March 2027. The government also promises to make it simpler for small businesses to bid, and to appoint an outside chair for its Commercial Innovation Hub, which helps departments buy new products. From spring 2027, an online Innovation Marketplace will let firms show new products to many public buyers at once.
• Faster testing, and a question on liability. Healey promised to “legislate for a regulatory carve out” so products like drones and medicines can be tested and scaled faster. The Regulating for Growth Bill will let rules be relaxed temporarily, under strict controls, for trials; potential uses include medical products, uncrewed defence systems and AI. A new drone regulation unit will also open clearer routes for testing uncrewed and autonomous systems. Next year the government will also consult on who is liable when insecure technology leads to a cyber breach. If you sell software or connected devices, watch that one.
• Less paperwork for R&D tax relief. From 1 April 2027 you no longer have to file a notification form before claiming, and the extra information form is simplified from autumn 2027. The rates do not change.
• Smaller pots by place. £7.5m for a cyber and AI hub at Queen’s University Belfast, £2.5m for more start-up space at the M-SParc science park in Anglesey, and £3m towards space for early-stage companies in the Don Valley.

Who pays, and the costs that land on you

There is no rise in the main rates of income tax, National Insurance, VAT or corporation tax. The money comes from banks, savers and online sellers, and from smaller changes that may reach you.

• Banks. The extra corporation tax on bank profits doubles from 3% to 6% for 15 months from January 2027, raising £1.5bn. If you are a fintech with a banking licence, check whether you are big enough to pay it.
• Savers and landlords. Income tax on savings interest and on property income rises by four percentage points from April 2027: the two announced in last year’s Budget and two more in this one. For savings, that means 24%, 44% and 49%.
• Online sellers. From October 2027, online marketplaces must collect VAT on behalf of UK businesses that sell more than £90,000 a year through a platform; the threshold and exact date are still to be confirmed. Sales between businesses are excluded. This pays for the cut in business rates for shops, pubs and gyms. If you sell through a marketplace, expect it to change how and when you are paid.
• Equipment. Full expensing, which lets companies deduct the whole cost of most new equipment at once, stays. The yearly deduction for other kit falls from 14% to 12% from April 2027, while the first-year deduction for other new kit, used mainly where full expensing does not apply, rises from 40% to 50% for spending from 1 January 2027.
• Taking money out of your company. The rules on how individual shareholders are taxed when a company pays them, such as dividends and buy-backs, will be rewritten from April 2028, with draft law to come. The aim is to stop people choosing whichever route is taxed least. If you plan to buy back shares or restructure, watch the draft.
• Energy. The 0% VAT rate on household electricity runs to 30 June 2027. About 10,000 energy-heavy manufacturers get 20–25% off electricity bills from April 2027. Most start-ups get neither.
• Importers. Tariff suspensions on some chemicals, plastics and other inputs are extended, and businesses can apply for new ones between 11 November 2026 and 3 February 2027. If you import parts, it may be worth applying.

All of this sits on thinner margins. The Office for Budget Responsibility cut its growth forecast for 2027 from 1.6% to 1%. Healey’s room to meet his own borrowing rule fell by £9bn since March, to £15bn. That is a small buffer, and the reason the giveaways are mostly cheap, delayed or both.

What happens next

Most of this starts on 6 April 2027, and much of the detail is still to be written.

1. “Shortly”: a consultation on the wider use of restrictive practices in contracts.
2. 11 November 2026 to 3 February 2027: the window to apply for new tariff suspensions.
3. 12 November 2026: the Financial Conduct Authority consults on performance fees in pension funds, a step towards more pension money in venture.
4. 30 November 2026: the consultation on Founders’ Relief closes. This is the chance to shape who qualifies. Responses go to [email protected].
5. January 2027: the definition of a UK supplier for public contracts.
6. Early 2027: the government’s full position on non-competes and other restrictive practices.
7. March 2027: the National Procurement Policy Statement goes to Parliament.
8. Spring 2027: lower visa salary thresholds, and the Innovation Marketplace for selling to government opens.
9. 6 April 2027: Founders’ Relief, the smaller older relief, EMI2, the EMI changes and the new trading allowance all start.
10. October 2027: online marketplaces start collecting VAT for UK sellers.