Entity Setup
Entity Setup & Tax Planning: Choosing the Right Structure in Light of Recent UK Policy Changes
New consultations and draft legislation on gifts, hybrid entities and overseas investment mean the choice of business structure matters more than ever.
By NomadicTax Research Team • 5-8 min read • August 20, 2026
## Recent Policy Signals to Watch
In the **Tax Update 2026: simplification, modernisation and fairness**, HMRC has introduced several consultations and draft legislations that impact business entity decisions. Notably:
- **Capital Gains Tax relief** will be modernised for *gifts of business assets*, especially where shareholdings or intangible assets are involved, to reduce distortions in how relief is calculated. ([gov.uk](https://www.gov.uk/government/publications/summary-of-tax-update-2026-simplification-modernisation-and-fairness/tax-update-2026-simplification-modernisation-and-fairness-summary?utm_source=openai))
- A **consultation closed** on UK resident individuals in US Limited Liability Companies and other “reverse hybrids”, aiming to remove double taxation and prevent effective tax rates above **75%**. ([gov.uk](https://www.gov.uk/government/publications/summary-of-tax-update-2026-simplification-modernisation-and-fairness/tax-update-2026-simplification-modernisation-and-fairness-summary?utm_source=openai))
Also, the review of **Benchmark Scale Rates (BSR)** and **Overseas Scale Rates (OSR)** intends to simplify the reimbursement rules for travel, meals and accommodation expenses for employees and international travel allowances. ([gov.uk](https://www.gov.uk/government/publications/summary-of-tax-update-2026-simplification-modernisation-and-fairness/tax-update-2026-simplification-modernisation-and-fairness-summary?utm_source=openai))
## Choosing an Entity: Sole Trader vs Ltd Company vs Hybrid Structures
| Structure | Advantages | Disadvantages / Considerations |
|----------|-------------|----------------------------------|
| **Sole Trader / Freelancer** | Simpler reporting, fewer admin costs, straightforward tax on profits via Self Assessment | All profits taxed as personal income; limited liability; less flexibility for reinvestment or profit extraction depending on policy changes |
| **Limited Company** | More flexibility—pay dividends, salaries; corporate tax rates may be advantageous; limited liability | Dividend taxation, administrative overhead, impact of double taxation rules for foreign-resident shareholders or hybrid entities |
| **Reverse Hybrids / Overseas Entities (such as US LLCs)** | Potential tax efficiency, asset protection, flexibility across borders | Under current consultation, double taxation risk above 75%; policy changes might reduce advantages or increase compliance burdens |
## Actionable Tax Planning Tips
- If you’re using or plan to use an overseas structure (e.g. US LLC), monitor policy developments. These may affect whether your entity’s income is taxed multiple times or how reliefs apply. Adjust structures before laws come into force.
- Consider the timing of gifting business assets. Under the new Capital Gains Tax reliefs, certain gifts may attract better tax outcomes if done under the reformed rules. Consult tax professionals to map when and how to gift.
- If employing staff who travel domestically or overseas, track actual costs of accommodation and meals to make use of BSR/OSR updates when finalized.
- Seek advice when considering profitability vs extraction trade-offs in limited company setups—dividend vs salary may be affected by upcoming tax changes.
## Examples
- *Innovate-UK Ltd*, a tech startup, issues shares to a co-founder as a ‘gift’. Under the old regime, substantial shareholdings or intangible assets complicated relief. With the reformed Capital Gains Tax gift relief, the startup may receive more generous relief. Timing and valuation matter.
- *Global Consulting LLC* registered in the US but with UK resident owners: As government considers reverse hybrid rules, they may find double taxation reliefs improved or expanded, reducing the cost of using LLC structures for UK users.
## Bottom Line
Recent policy consultations signal changes that may shift the optimal entity arrangements. Business owners should **stay informed**, **review structure choices**, and consider upcoming reforms to take advantage of favorable regimes before laws change.