Entity Setup
Entity Setup Strategies in Light of UK CGT & Inheritance Tax Reforms
Major changes to Capital Gains Tax and Inheritance Tax announced in the UK’s recent Budget affect entity structuring. This article explores how new rules reshape planning for SMEs, estates, and corporate exits.
By NomadicTax Research Team • 5-8 min read • November 21, 2025
## What’s Changed: CGT & IHT Updates
The UK Autumn Budget introduced several important reforms:
- **Capital Gains Tax (CGT)** rates have been increased: 10% → 18% for lower-rate taxpayers, and 20% → 24% for higher-rates, aligning CGT on gains for business disposals 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)** is being phased up: 10% in current year, rising to 14% from 6 April 2025, then 18% from April 2026-27. ([gov.uk](https://www.gov.uk/government/news/chancellor-chooses-a-budget-to-rebuild-britain?utm_source=openai))
- **Inheritance Tax (IHT)** thresholds are being frozen until April 2030, and reliefs like Agricultural Property Relief & Business Property Relief are being reformed: full relief for assets within the first £1 million, then tapering to 50% on value above that for larger estates. ([gov.uk](https://www.gov.uk/government/news/chancellor-chooses-a-budget-to-rebuild-britain?utm_source=openai))
## Implications for Entity Structuring Decisions
### For SMEs and Start-ups
- A business owner planning to sell shares should reconsider timing: selling before the BADR rate increases may save substantial tax.
- Use of **holding companies** may offer options to distribute gains among family stakeholders staying within relief limits.
- Investing via shareholdings or equity instruments can preserve relief eligibility.
### For Estates & Succession Planning
- For someone passing high-value farms or businesses, aligning asset values close to the £1 million threshold is crucial.
- Gifting during life may help reduce taxable estates over threshold, but watch the timing with frozen thresholds.
- Incorporating assets into trusts will be affected: the removal of domicile-based distinctions means estate plans must be reviewed.
## Examples with Scenarios
| Scenario | Before Reform Strategy | After Reform Considerations |
|---|---|---|
| Selling family business shares | Use BADR at 10% for lifetime gains, plan sale accordingly. | If sale occurs after 6 April 2025, expect 14–18% rate; split sale or defer if possible. |
| Inheritance of combined business & agricultural property valuing £2 million | Previously possibly full relief under BPR/APR. | Only first £1 million gets full relief; remaining £1 million taxed at 50% relief level. |
| Property portfolio held by private company | Use of company structure + BADR for individuals. | CGT alignment with residential property may reduce arbitrage. |
## Actionable Structuring Tips
- **Review BADR eligibility** annually; small shareholdings and business operations matter.
- **Align valuations** using latest appraisals to get relief under relief ceilings.
- **Consider phased disposals** and possibly family transfers ahead of rate rises or frozen thresholds.
- **Use trusts and lifetime gift allowances** but reassess in light of domicile regime change.
- **Seek professional advice** particularly when disposing of high-value assets or transferring wealth.
## Compliance Essentials
- Keep detailed records of asset cost bases, special relief claims, and valuations.
- File necessary CGT and IHT documents promptly after transactions.
- Ensure inheritance tax forms and trusts are up-to-date given the removal of non-UK domicile privileges.
## Bottom Line
Structuring entities and estate plans in the UK now demands more forward-looking strategy. With **higher CGT rates**, **frozen inheritance thresholds**, and **residence-based taxation**, businesses and individuals need to adapt. Practical actions earlier rather than later on sales, gifting, or succession could lead to major tax savings.