The Autumn Budget delivered on 28 October 2026 left the main rates of capital gains tax untouched. Its significance lies beneath them: in the conditions attached to the reliefs, and in the confirmation of a reform that will change how owners take value out of their companies from April 2028. Read alongside two measures already in force, the abolition of the non-domicile regime and the cap on business property relief, it completes a pattern in which relief remains available but is narrower, more conditional and more closely policed.
A Budget of Held Rates
The Chancellor, John Healey, kept capital gains tax at 18 per cent for basic-rate taxpayers and 24 per cent for higher-rate taxpayers, and made no change to headline income tax rates. Several advisers described the Budget as relatively quiet. The description is accurate as to rates and misleading as to architecture. The lifetime limit on Business Asset Disposal Relief (BADR) is to be halved. A new and narrowly drawn Founders' Relief is proposed. And the Government has confirmed that it will proceed with a package of seven reforms to the taxation of company distributions, intended to take effect in April 2028.
These measures sit on top of changes already in force: the replacement of domicile by residence as the organising principle of UK taxation from 6 April 2025; the cap on inheritance tax relief for business and agricultural property from 6 April 2026; and the removal of an important exemption from the temporary non-residence rules for individuals returning to the UK on or after that date. For founders, owners and the families who hold wealth through them, each of these must now be considered together.
Business Exits: BADR and Founders' Relief
BADR, the successor to Entrepreneurs' Relief, applies a reduced rate of capital gains tax to qualifying gains on the disposal of a business. The rate rose to 18 per cent on 6 April 2026. For qualifying disposals on or after 6 April 2027, the lifetime limit falls from £1 million to £500,000, with transitional provisions for contracts entered into, and certain reorganisations begun, but not completed before that date. In cash terms the effect is modest. A higher-rate taxpayer with gains above the new limit pays up to £30,000 more than before, being the difference between 18 and 24 per cent on £500,000. In principle the effect is larger. BADR remains accessible, requiring a 10 per cent shareholding and a two-year holding period, but it ceases to be a material consideration in the structuring of a substantial sale.
Beside it, the Government proposes Founders' Relief: a 10 per cent rate on up to £10 million of lifetime gains, for qualifying disposals on or after 6 April 2027. Against the 24 per cent main rate, the maximum benefit would be £1.4 million per individual. The relief is the subject of a technical consultation closing on 30 November 2026, and its conditions are not final. As proposed, they are demanding.
Condition | Proposed requirement |
Shareholding | At least 25 per cent of the ordinary share capital when the trade, or preparations for it, began |
Holding period | Shares held for at least five years before disposal |
Residence | UK tax resident for at least five continuous tax years before disposal |
Scale | In the accounting period before disposal, turnover of at least £10 million and at least 15 qualifying full-time employees |
Growth or innovation | Two of three tests: 25 per cent annual compound growth in turnover over three consecutive periods; the same in headcount; or at least £1.5 million of qualifying R&D expenditure claimed in the three years before disposal |
The company must also have a substantial UK presence, and trades excluded under the Enterprise Investment Scheme rules are ineligible. The £10 million limit is reduced by any claims made under BADR and Investors' Relief from 6 April 2027. Where a qualifying condition depends on an R&D claim that HMRC later successfully challenges, the relief could be withdrawn.
The design carries consequences that owners should weigh early. Because the ownership test is applied when the trade began, later-arriving co-founders and management teams brought in to scale a business cannot satisfy it, however large their eventual holdings. The turnover and headcount floors create a cliff-edge: a research-intensive company may meet the R&D test comfortably and still fall short of £10 million in revenue at the point of sale. Advisers have observed that the relief rewards the scale-up rather than the
long-established owner-managed business, which falls back on a reduced BADR and the 24 per cent rate.
Extraction: The Distributions Reform of April 2028
For many years the tax system tolerated a differential between capital gains tax, at up to 24 per cent, and income tax on dividends, at up to 39.35 per cent. Shareholders used that differential to extract retained profits as capital, through members' voluntary liquidations, demergers effected by capital reduction, purchases of own shares and the interposition of new holding companies.
Following a consultation earlier this year, the Government has confirmed that it intends to proceed with all seven proposals as a coordinated package. A technical consultation, with draft legislation, will take place in 2027, and the changes are intended to apply from April 2028. The measures include:
limiting capital treatment following a share reorganisation to the capital originally subscribed, with any excess generally taxed as an income distribution;
removing the capital reduction route used for non-statutory demergers, while broadening the statutory demerger relief;
tightening the conditions for purchases of own shares;
bringing distributions from non-UK resident companies more fully within the charge to income tax, and introducing a temporary charge on loans from non-UK close companies that broadly mirrors section 455 for UK close companies; and
replacing the transactions in securities rules with a more modern, principles-based anti-avoidance regime.
The Government has stated that capital treatment will be preserved for genuine changes in ownership, with family succession and third-party sales expressly in view. Concerns raised by the funds and private capital sector remain the subject of further consultation. The package is expected to raise around £800 million a year, the largest single revenue measure directed at business owners in the Budget.
The lead time of some seventeen months is a period for careful reflection rather than haste. Owners contemplating a demerger, a buyback or a liquidation have a defined window in which existing rules continue to apply, but those rules, including the current transactions in securities provisions, remain in force and demand attention. The draft legislation has yet to be published, and its final scope may differ from the proposals as described. Once the new framework operates, the evidential burden of demonstrating a genuine change of ownership is likely to rest with the taxpayer.
Residence in Place of Domicile
The remittance basis was abolished with effect from 6 April 2025, and tax liability for internationally mobile individuals now turns on the Statutory Residence Test rather than on domicile. For individuals arriving after at least ten consecutive tax years of non-residence, the Foreign Income and Gains (FIG) regime provides a full exemption on foreign income and gains for the first four tax years of UK residence, and permits those funds to be brought into the United Kingdom without charge. A claimant forgoes the personal allowance and the annual exempt amount for the claim years. On expiry of the four years the individual is taxed on worldwide income and gains as they arise.
Former remittance-basis users have two transitional provisions. The Temporary Repatriation Facility allows pre-April 2025 unremitted foreign income and gains to be designated at 12 per cent in 2025/26 and 2026/27 and 15 per cent in 2027/28, after which the facility closes on 5 April 2028. A rebasing election allows personally held foreign assets, disposed of on or after 6 April 2025, to be rebased to their market value at 5 April 2017.
In inheritance tax the organising concept is now long-term residence. An individual who has been UK tax resident for ten of the previous twenty tax years has a worldwide estate within the scope of UK inheritance tax. That exposure survives departure. The tail is three years for those with ten to thirteen years of residence, increases by one year for each further year of residence, and reaches its maximum of ten years at twenty years. A fifteen-year resident, for example, remains in scope for five years after leaving.
Offshore trusts have been affected in parallel. The protected settlement regime has ended, and trust income and gains are taxable on a UK-resident settlor as they arise, other than during the settlor's FIG years. Non-UK assets settled by a non-domiciliary no longer enjoy permanent excluded property status. Where the settlor is a long-term resident, the trust is subject to the relevant property regime, with periodic charges of up to 6 per cent every ten years and proportionate exit charges.
Leaving: The Limits of Departure
The United Kingdom imposes no general exit tax. It relies instead on the temporary non-residence rules in section 10A of the Taxation of Chargeable Gains Act 1992. An individual who was resident for at least four of the seven tax years before departure, and who returns within five full tax years, is taxed in the year of return on gains realised abroad on assets held before departure, at the rates then prevailing.
The rules were narrowed in one respect only to be widened in another. Until recently, dividends paid by a close company out of trading profits earned after the shareholder's departure fell outside the charge. For individuals returning on or after 6 April 2026 that exception has been removed, and all dividends and distributions from close companies received during a period of temporary non-residence are chargeable to income tax on return. The approach of leaving for a short period, extracting profits and returning is therefore closed.
Treaties do not alter this. A founder resident in the United Arab Emirates will ordinarily find that the UK–UAE treaty allocates taxing rights over gains on shares to the state of residence, and the UAE levies no personal income tax. Two limits apply. Where a company derives 75 per cent or more of its value from UK land and the seller holds a substantial interest, the UK retains its taxing right, with reporting within sixty days. And a return within five years brings the gain back into charge under the temporary non-residence rules, with no foreign tax credit to set against it because none was paid. Inheritance tax lies outside the treaty, so a long-term resident who has left remains exposed at 40 per cent on a worldwide estate for the length of the tail.
Business Property Relief
From 6 April 2026, 100 per cent relief from inheritance tax on business and agricultural property is limited to a combined £2.5 million per individual. Qualifying value above that figure receives 50 per cent relief, an effective rate of 20 per cent. Shares quoted on the Alternative Investment Market receive 50 per cent relief from the first pound and do not use the allowance. Unused allowance is transferable between spouses and civil partners, giving a married couple up to £5 million.
For a family enterprise valued in the tens of millions, the consequence is an inheritance tax liability on the greater part of the value, arising at death and often requiring liquidity the business cannot readily supply. Owners weighing whether to retain surplus capital in a trading company now face two measures pulling in opposite directions. The cap reduces the inheritance tax advantage of retention, while the 2028 reform will increase the cost of extraction. The question is no longer which route is cheaper in the abstract, but which can be evidenced, funded and timed.
Conclusion
None of the individual measures is unprecedented. Their combined effect is to replace broad, lightly conditional reliefs with narrower ones that depend on facts: how long a shareholding was held, where an individual was resident, how a company grew, and whether a change of ownership was genuine. The tax code increasingly asks what a transaction is, not how it is described.
For owners and their families, the practical response lies in governance as much as in tax planning. Ownership history, residence records, the commercial rationale for a restructuring and the timing of each step are now part of the structure, and need to be documented as the transactions occur rather than reconstructed afterwards. Several of the proposals remain subject to consultation, and decisions should be taken against legislation as enacted, not as proposed.
This article is provided for general information and does not constitute legal or tax advice. Readers should seek professional advice on their own circumstances.
