Entity Setup
Entity Setup in the UK: What Business Structures Work Best After the Budget Changes
With revisions to business rates, CGT, and reliefs, choosing the right legal structure in the UK has never been more consequential. Here's how to pick the optimal business entity in light of Budget 2025 policy shifts.
By NomadicTax Research Team • 7 min read • November 22, 2025
## Key 2025 Budget Changes to Consider
The Autumn Budget 2025 introduced multiple changes impacting businesses’ tax and operational environment in the UK:
- **Capital Gains Tax** (CGT) rates are rising—lower rate from **10% to 18%**, higher rate from **20% to 24%**, aligning non-property CGT rates with residential property rates. ([gov.uk](https://www.gov.uk/government/news/chancellor-chooses-a-budget-to-rebuild-britain?utm_source=openai))
- **Business Asset Disposal Relief (BADR)** keeps its 10% rate for now, but will **increase to 14% in April 2025**, then to **18%** from April 2026-27. ([gov.uk](https://www.gov.uk/government/news/chancellor-chooses-a-budget-to-rebuild-britain?utm_source=openai))
- **Business Rates relief** is being permanently lowered for retail, hospitality and leisure properties (under £500,000 rateable value) from April 2026. Plus, the government is reviewing the “cliff-edges” impacting small businesses opening additional premises. ([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))
## Entity Types in the UK: Pros, Cons & Fits After the Budget
### Sole Trader (Self-Employed)
**Pros:** lowest setup cost; profits taxed through Income Tax; simpler compliance.
**Cons under new CGT/BADR changes:** harder to claim BADR; capital gains on sale of sole trader business assets may now attract higher CGT rates.
**Best for:** individuals with modest growth plans and low capital gains events.
### Limited Liability Company (Ltd)
**Pros:** separates personal & business risk; profits taxed under **corporation tax**; dividends taxed separately.
**Cons:** Compliance costs higher; possibly less favorable if owner plans to extract capital gains via CGT rates that have risen.
**Best for:** businesses generating retained profits, needing funding, or scaling significantly.
### Partnership / LLP
**Pros:** flexible profit sharing; often more tax transparency.
**Cons under Budget changes:** partners mapped into new MTD obligations; capital gains on partnership-related disposals could now face much higher CGT; possibly less favorable BADR if the structure isn’t suitable.
**Best for:** professional firms, small collaborations.
## Choosing Based on CGT & Disposal Events
- If you expect **capital gains** from business disposals or asset sales (e.g. selling a business, property, or shares), consider holding assets through an entity type that allows for **Business Asset Disposal Relief** or timing disposals before CGT rate increases.
- Carefully monitor whether your BADR claimable assets will benefit more as an individual, LLP partner, or company shareholder under the new regime.
## Business Rates & Location Strategy
- If you’re in **retail, hospitality, or leisure property**, check if your rateable value is under £500,000: you may benefit permanently from lower business rates from **April 2026**. ([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))
- Opening new premises? Watch for how “cliff-edge” reliefs work—moving from one property to two might trigger loss of reliefs unless proposed reforms cushion the jump. ([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))
## Steps to Set Up Smartly Post-Budget
1. Run projections: model **how profits, disposals, dividends, and business premises costs** interact under the new CGT & BADR rates.
2. Choose entity type with future needs in mind: planning for growth, external investment, exit, or sale.
3. Consider **timing**: If possible, arrange disposals before April 2025-26 to exploit lower CGT rates or existing reliefs.
4. Use reliefs where available: BADR, business rates relief under threshold, and ensure compliance with MTD obligations.
5. Maintain accurate records & forecast tax liabilities (corporation, CGT, dividend) under revised rules.
## Example Case: Boutique Café Owner Planning Expansion
- **Current self-employed**, paying Income Tax + Class 4 NICs.
- Wants to open second site. Considering limited company due to liability and possible funding.
- Under Budget: business rates relief upcoming for retail properties under £500,000 (benefit from April 2026). Limited company may help split assets, protect owner. CGT rates rising means if she sells the business in future, she needs to factor in higher rates—so setting up structure now may offer more BADR potential.
## Conclusion
With CGT and BADR rates rising, business rates relief on the horizon (especially for retail/hospitality), and stronger compliance/making tax digital obligations, **entity choice should be strategic**. Structure your business with future disposals, growth and location in mind—and act ahead wherever possible to lock in favorable rates or reliefs.