After much debate as to what may or may not have been covered in the budget, we now know the outcome, well at least in part. The Budget 2026 contains several important proposals for business owners, founders and those considering buying or selling a company.
For many privately owned businesses, however, two areas stand out: changes to the tax treatment of business sales and the proposed reform of non-compete clauses.
Much of the detail is still to come, making the draft Finance Bill 2026-27 particularly important.
Founders’ Relief could transform some business sales
From 6 April 2027, the Government proposes to introduce a new Founders’ Relief, offering qualifying founders of high-growth, innovative companies a 10% Capital Gains Tax rate on up to £10 million of lifetime gains.
For qualifying entrepreneurs contemplating an exit, that could be extremely valuable.
However, there is an important word of caution. The detailed qualifying conditions have not yet been finalised. A technical consultation will inform legislation in the Finance Bill 2026-27.
Business owners should therefore not assume that simply founding or incorporating a company will be enough to qualify. The eventual definition of a qualifying founder and a high-growth, innovative company will be critical.
Our view is that this proposed relief is to bring the UK more in line with reliefs available to entrepreneurs in the USA, with the clear aim of attracting more talent, particularly in the tech sectors and AI, to develop businesses in the UK. Whilst the wording is not yet known, we predict that this Founders Relief will be geared towards businesses which could be founded in diverse jurisdictions with the aim of getting entrepreneurs to choose the UK.
BADR is becoming less generous
At the same time, Business Asset Disposal Relief (BADR) is due to become considerably more restricted.
From 6 April 2027, the lifetime limit for qualifying gains will fall from £1 million to £500,000, with qualifying gains within that allowance currently taxed at 18%. Currently, most business owners selling a business for up to £1m would, in most circumstances, pay CGT at a rate of 18% on the entire amount. From 6 April 2027, this rate of tax would only apply on the first £500,000, and any amount above that threshold would be taxed at the prevailing CGT rate, probably 24%. This means that a business owner selling their business for £1m after 6 April 2027 will, in all likelihood, pay an additional £30,000 in tax.
This creates a potentially significant distinction between two types of seller:
- a qualifying founder who could potentially access a 10% rate on gains of up to £10 million; and
- an established owner-manager who may only have £500,000 of remaining gains eligible for BADR at 18% before an increased rate of 24% applies.
For anyone currently considering a sale in 2027, transaction timing could therefore become an important part of the discussion.
The eventual Finance Bill will need to be examined closely before decisions are made, particularly for transactions close to 6 April 2027 and in light of any commencement or anti-forestalling provisions.
Non-compete clauses are also set for reform
Another important announcement concerns non-compete clauses.
The Government intends to legislate to reduce the extent to which non-competes restrict employees moving jobs or growing businesses recruiting staff. Further detail is expected following consultation.
For business owners, this potentially extends beyond employment documentation.
When a company or business is sold, a purchaser will commonly seek restrictive covenants preventing the seller from immediately competing with the acquired business, approaching its customers or soliciting key employees.
It will therefore be important to establish how the eventual legislation distinguishes between employee non-competes and seller restrictions given as part of a business sale.
If the rules change significantly, purchasers may need to look more carefully at alternative protections for the goodwill and customer relationships they are acquiring.
Other Budget changes for businesses
There are several other measures worth noting:
- changes to employee share incentive arrangements, including EMI and the proposed EMI2 regime. This seems to tie in with the stated aim of the Government to increase investment in the UK but also to encourage greater share ownership in business as a means of incentivising Companies to retain key personnel;
- measures intended to simplify access to R&D tax relief;
- further Government support for start-ups and scale-ups through the British Business Bank;
- changes to capital allowances intended to encourage new investment;
- increased National Living Wage and Minimum Wage rates from April 2027; and
- future changes to the tax treatment of company distributions and reorganisations. Further information is awaited on this and this could have an impact on business sales. We suspect that the businesses retaining large sums of cash may be targeted insofar as how the value of this cash is taxed when it comes to selling the business. Further information is awaited so there is a lack of certainty on this.
These measures may influence decisions around investment, remuneration, recruitment, succession and corporate restructuring.
What should business owners do now?
There is no need for businesses to make rushed decisions following the Budget. However, owners contemplating a sale, acquisition or restructuring during 2027 should start planning early.
In particular:
- Review the expected timing and structure of any proposed transaction and start planning now.
- Do not assume Founders’ Relief will apply until the qualifying conditions are known.
- Review existing restrictive covenants in employment, shareholder and transaction documents.
- Obtain coordinated legal and specialist tax advice before altering a transaction for tax reasons.
Looking ahead
For business owners, perhaps the most important message from Budget 2026 is that the detail will matter as much as the headlines.
The proposed £10 million Founders’ Relief could provide a substantial benefit to some entrepreneurs, while the reduction in BADR could make an exit less favourable for many conventional owner-managers.
Add the proposed reform of non-compete clauses and 2027 could bring significant changes to the way business sales are structured and negotiated.
Ison Harrison’s Corporate and Commercial team advises business owners on acquisitions, disposals, shareholder arrangements, reorganisations and succession and exit planning. If you are contemplating a transaction, taking advice at an early stage can help preserve flexibility while the new rules develop.
Call us on 0113 284 5000 or e-mail us at companycommercial@isonharrison.co.uk.
This article is for general information only. Several Budget measures remain subject to consultation and legislation. Tax advice should be obtained from an appropriately qualified tax adviser.
