New ‘founder relief’ is meant to boost entrepreneurs, but can anyone name a founder who qualifies?
A new tax rate of 10 per cent capital gains on up to £10m lifetime gains is designed to encourage and reward founders, but the draft rules are so narrowly drawn that hardly anyone will qualify, says John Manis In the film My Fair Lady, the heroine’s father, Alfred P Doolittle, makes a memorable case [...]
The new "founder relief" tax rate aims to encourage and reward entrepreneurs, but the draft rules are so restrictive that few individuals will meet the qualifications, according to tax expert John Manis. The relief offers a 10% capital gains tax on up to £10 million of lifetime gains for qualifying founders. To be eligible, a founder must have held at least 25% of the company's ordinary shares and voting rights when the business began trading, have been a UK resident for five continuous tax years, and meet one of three additional criteria.
These criteria include five years of ownership, a turnover of £10 million, and either a 25% compound annual growth rate in turnover, a similar growth in headcount, or recent R&D relief claims on £1.5 million of spending. The primary goal is to reward genuine founders of exceptional high-growth, innovative companies. However, the strict criteria limit the pool of qualifying applicants significantly.
For instance, Anthropic, a leading artificial intelligence company, would not qualify due to its multiple co-founders and changes in business nature. The harsh requirements question whether any founders truly meet the qualifications for this relief. The government's intention is clear: to support the most deserving and innovative founders, but the current rules may inadvertently push deserving entrepreneurs to seek opportunities elsewhere.
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