‘Bonkers’ founders’ relief criticised over rules that could punish startup growth
John Healey’s flagship tax break for entrepreneurs has been branded “bonkers” by leading economists, who warn its restrictive rules could punish startup growth and encourage founders to make decisions that damage productivity. The new Founders’ Relief offers a 10 per cent capital gains tax rate on up to £10m of lifetime gains, but its complex [...]
Economists have dismissed Chancellor Jeremy Healey's latest tax break for entrepreneurs as "bonkers," warning that its stringent eligibility rules could stifle startup growth and drive founders to make decisions that harm productivity. The Founders' Relief offers a 10% capital gains tax rate on up to £10m of lifetime gains, but its complex criteria have sparked backlash since its announcement in the recent Budget.
Helen Miller, director of the Institute for Fiscal Studies, argued that the relief incentivizes undesirable behaviors, such as manipulating revenue growth or selling businesses prematurely. Tax expert Dan Neidle cautioned that entrepreneurs couldn't plan around a potentially changing tax incentive. The proposed rules require a 25% ownership stake at the business's inception and a five-year ownership requirement, with qualification limited to around 600 individuals annually.
Critics like Tim Creswick deemed the scheme a "pointless lottery," questioning the relevance of employment growth as an eligibility factor. Despite the criticism, the Treasury estimates the scheme will cost £260m in 2027-28, while restricting the existing relief raises £60m. The Founder's Relief is currently under consultation until 30 November before its planned introduction in April 2027.
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