Entity Setup
Entity Setup for Startups: Making the Most of UK Reforms & Reliefs
New UK tax reliefs and entity-level reforms are reshaping how startups plan structure, finance, and investments, especially around carried interest. Learn how to set up smartly in 2025.
By NomadicTax Research Team • 5-8 min read • November 23, 2025
## Key Reforms Impacting Startup Structures
Several UK policy changes are especially relevant when setting up or funding a startup:
- **Carried Interest Tax Treatment**: From April 2026, all carried interest will be taxed under Income Tax (with a 72.5% multiplier for qualifying equity-linked rewards) instead of through Capital Gains Tax, aligning taxation closer to economic reward. ([gov.uk](https://www.gov.uk/government/calls-for-evidence/the-tax-treatment-of-carried-interest-call-for-evidence/outcome/the-tax-treatment-of-carried-interest-government-response-and-policy-update-june-2025-accessible?utm_source=openai))
- **Corporation Tax Rate Stability**: The UK has confirmed that the main rate will remain at **25%**, the lowest among G7 countries, providing rate certainty for investors. ([commonslibrary.parliament.uk](https://commonslibrary.parliament.uk/research-briefings/cbp-10124/?utm_source=openai))
- **Simplification for businesses expanding premises**: Government is reviewing “cliff edges” in business rates, which penalise growth when companies open second properties, set to improve via reforms announced ahead of the Budget. ([gov.uk](https://www.gov.uk/government/news/chancellor-commits-to-explore-pro-growth-tax-reforms-to-support-small-businesses-opening-new-premises?utm_source=openai))
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## Actionable Set-up Tips for Founders & Investors
- **Equity reward planning**: If you're negotiating carried interest or similar upside shares, keep in mind that from April 2026, such rewards will attract income tax and NICs. It may be worth rethinking how equity compensation is structured or delaying certain grants.
- **Choose your entity type carefully**: Startups often use LLPs, limited companies or partnerships. With changing reliefs and certainty around rates, the differences in access to reliefs, ability to issue carry, investor expectations, and pensions / ITSA liabilities may tilt the balance.
- **Location & premises strategy**: Planning to expand or occupy additional property? Watch for business rates reliefs and changes addressing cliff edges. Structuring rateable values and timing premises expansion could unlock savings.
- **Raise capital before tax changes**: If your venture raises funds or grants carry before April 2026, some advantageous tax treatment under current rules may apply. Be sure to document terms well and assess investor expectations.
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## Example Scenario
Imagine Investor LLC is setting up a tech startup, offering co-founders 20% carry in profits. Prior to the change, carry might have been subject to Capital Gains Tax; post-April 2026 it becomes trading income and subject to Income Tax + NICs using the 72.5% multiplier. If carry is granted earlier, there could be better alignment with investor returns.
Elsewhere, ShopUp Ltd is planning to open a second store. Under reforms addressing business rates cliff edges, ShopUp could avoid dropping all reliefs as soon as they open the second premises if reforms propose slice-based relief rather than abrupt cut-offs.
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## Setup Checklist
- Review and negotiate carry agreements ahead of April 2026.
- Have accountants model tax burdens using both current and upcoming regimes for carry to assess impact.
- Consult business rates schedules and plan location/premises expansions in line with expected reforms.
- Lock-in contracts or financial arrangements before tax thresholds shift or caps adjust.
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**Conclusion**: If you’re launching or scaling a startup, the next 6–18 months are pivotal. Leverage early action around carried interest, entity types, and premises strategy to position your venture optimally under the incoming wave of UK tax reforms.