In October 28th’s Autumn Budget 2026, the Chancellor announced certain changes to employee share schemes and Capital Gains Tax (CGT) which may affect owners considering selling their businesses. The main point to note is no change to the headline rate of CGT or the EOT relief, so the position remains exactly the same as before.

There are, though, some points worth noting: the halving of the Business Asset Disposal Relief (BADR) limit, a proposed new relief for founders, and changes to the Enterprise Management Incentive (EMI) and Company Share Option Plans (CSOP) share schemes (now renamed EMI2).

No change to headline CGT rates or EOT relief

Headline CGT rates

No changes announced to the headline CGT rates. The basic rate remains at 18% and the higher rate remains at 24%.

Employee ownership trusts

No changes to the EOT tax reliefs were announced. EOTs therefore continue to benefit from 50% relief on the headline capital gains tax rate. For most individuals, this gives an effective tax rate of 12% on shares sold to an EOT.

Employees of EOT owned businesses continue to be eligible for potential income tax free bonuses of up to £3,600 per employee per year.

The Budget confirmed that EMI share schemes continue to be available for businesses owned by EOTs.

Business Asset Disposal Relief

The lifetime limit on gains eligible for BADR has been halved from £1 million to £500,000. As a reminder, BADR allows for a reduced rate of CGT, currently 18% tax, on that now first £500,000 of gains. This cannot be combined with the EOT relief – that remains 12% on the entire gain – but it is relevant if considering the alternative options of a trade sale or a management buyout, as the effective level of CGT on the disposal would now be higher given the BADR allowance has been halved. Likewise this is relevant for employee share schemes, such as EMI schemes, being used in the context of a hybrid EOT model.

Founders’ Relief

The Government is consulting on a new CGT relief for founders in high-growth UK companies, intended to apply to disposals on or after 6 April 2027. The consultation closes at the end of November so we should have a better idea of exactly what the final conditions are in December.

It would allow for a 10% rate of CGT on qualifying share disposals, up to a lifetime limit of £10m of gains per individual (reduced by any BADR already claimed).

But the proposed conditions for consultation are strict:

• The individual must have held at least 25% of the company’s shares when the trade began; have held their shares for at least five years, and have been UK resident for at least five continuous tax years before the disposal.
• The company must be a UK trading company (or the holding company of a trading group). It must have turnover of at least £10 million and at least 15 qualifying full-time employees in the last accounting period before the disposal.
• Growth and innovation: the company must also pass at least two of three tests. The first is turnover growth of at least 25% a year over three consecutive accounting periods, starting from a base of at least £10m of turnover. The second is headcount growth of the same rate over the same period, also starting from a base of at least 15 full-time employees. The third is at least £1.5m of qualifying R&D expenditure, claimed for in the three years before disposal.

It is these growth and innovation tests that would rule out a high proportion of businesses we work with. Very few would be claiming £1.5m of R&D expenditure, and likewise very few would be able to demonstrate turnover growing by 25%+ over 3 consecutive years once they had crossed the £10m turnover threshold.

What this means for you:

These proposals are likely to restrict the relief to a small group of founders, but the details may change with the consultation, which closes on 30 November 2026, with legislation expected in Finance Bill 2026-27. It is worth keeping an eye on this, and exploring in more detail if you think there is a chance you could qualify for the relief.

Changes to employee share schemes

The Budget extends the tax-advantaged share option schemes available to employers, with changes to both CSOPs and EMI scheme rules.

EMI2 (formerly CSOP)

Company Share Option Plans (CSOPs) have (somewhat confusingly!) been renamed EMI2 schemes, reflecting the way they work alongside EMI. EMI has strict qualification requirements, so some businesses cannot use it and others stop qualifying over time. EMI2 has more lenient requirements, and can often be used where a company does not qualify for EMI.

Three changes apply to EMI2, all from 6 April 2027:

• Higher grant limit: the individual limit on the value of options at the date of grant doubles, from £60,000 to £120,000.
• Higher combined limit: the EMI2 £120,000 limit can be used on top of the EMI £250,000 individual limit, so an employee can hold up to £370,000 of tax-advantaged options, compared with a combined £250,000 previously.
• Longer exercise period: options can be exercised for up to 15 years rather than 10, in line with EMI, giving employees more time to realise their options.

Together, these are positive changes that should put tax-advantaged options within reach of more employees.

EMI schemes

Two changes affect EMI schemes:

• Longer window to exercise after leaving: currently, an employee keeps their income tax relief if they exercise their options within 90 days of a disqualifying event, such as leaving employment. From 6 April 2027 this extends to 180 days.
• Simpler HMRC reporting: the notification that must be made to HMRC after options are granted is being combined with the existing EMI end-of-year return. The current process is somewhat convoluted and the deadlines for the two filings are already the same, so combining them is a sensible change for the many companies that deal with both at the same time.

 

If you would like to talk through how any of these changes affect your plans, please get in touch.