Ask the right questions first
When setting up a business entity, trust, or residency, these are essential questions given UK reforms:
- What is the proposed residence status of the founders/directors/shareholders, and their non-UK income/gains exposure under new non-dom rules? Essentials change from 6 April 2025. (gov.uk)
- Will the individuals qualify for the 4-year FIG regime? If not, the entity may have higher exposure to UK income tax, capital gains tax, and inheritance tax.
- Are overseas trusts involved? Trust protection under former non-dom/domicile laws is reduced unless within FIG regime. Be cautious about settlor income/gains post-6 April 2025. (gov.uk)
- What income thresholds apply to digital reporting (MTD)? £50,000 in 2026, then £30,000 etc. This impacts accounting and entity structure. (gov.uk)
Entity types: pros & cons under the reforms
| Entity Type | Advantages under new rules | Disadvantages |
|---|---|---|
| Sole trader / individual ownership | Simpler setup, lower costs; under thresholds may avoid MTD, or benefit from FIG if eligible. | Less ability to segregate assets; full exposure to personal tax/CGT; trust shelters less effective. |
| Limited company (owner-managed) | Possible tax-efficient salary/dividends; corporate structure adds layering; may limit liability. | More complexity; company profits taxed at 25%; dividends taxed; compliance costs; MTD still applies to personal income, but non-dom trust/FIG rules still affect shareholders. |
| Trusts / offshore vehicles | May have historic reliefs; possibility of using TRF for pre-2025 assets; can assist inheritance planning. | From April 2025 trust protections narrowed; many foreign income/gains arising in or through trusts will be taxed on settlors/transferors if not eligible; more challenging to maintain shelter. |
Practical setup strategies
- Residency first: If you expect to be UK resident after years abroad, structure residency strategy to meet FIG criteria.
- Timing of asset transfers: Assets held abroad may get rebase option if held as of 5 April 2019; consider this before disposal. (gov.uk)
- Trust restructuring: Review if existing trust arrangements are beneficial; post-6 April 2025 distributions may lose protection.
- Business-entity split: If you have overseas operations, separating entities might help manage exposure to UK tax; careful with international tax treaties and residence status.
Example scenario
Maya runs a consulting business in two jurisdictions and is considering forming a limited company in the UK vs staying as a sole trader. She has foreign clients and income. Under the new rules, if she qualifies for FIG, some of her foreign income may be exempt initially — but if she structures via a trust or offshore entity she needs to ensure it aligns with FIG eligibility. Using a UK company for domestic operations while keeping foreign income in a separate branch might help, but will need mapping to the new tax regimes—including how dividends or trust distributions are taxed.
Checklist for entity setup now
- Confirm founders’ residence history (non-UK years), foreign income history, trust involvement
- Run projections for tax under both remittance/FIG and arising regimes
- Get legal/tax advice on inheritance tax implications for non-UK assets and trusts
- Choose entity form that aligns with digital reporting obligations and thresholds
- Keep documentation robust—residence, foreign income/gains, asset purchase dates, trust settlor dates etc.
Conclusion
The UK tax landscape has shifted. Entity structures, use of trusts, residency histories—all now carry much higher significance under the new non-dom regime and digital reporting rules. Taking time now to plan your setup can mean major savings, fewer compliance risks, and more certainty in your financial future.