Key Entity-Relevant Tax Changes You Should Know
Recent UK tax reforms bring significant changes affecting the way entities and estates are structured. Key updates:
- Capital Gains Tax (CGT) rate increases: From Finance Act 2025, CGT rates for lower-rate taxpayers rose from 10% to 18%, and from 20% to 24% for higher rate taxpayers. These now match the rates charged on residential property. (legislation.gov.uk)
- Business Asset Disposal Relief (BADR) changes: BADR remains at 10% this tax year, increasing to 14% on 6 April 2025, then rising to 18% from 6 April 2026-27. Entities considering exit planning or restructuring must be aware of this schedule. (gov.uk)
- Inheritance Tax (IHT) reliefs reformed: Agricultural Property Relief (APR) and Business Property Relief (BPR) rates will continue at 100% for the first £1 million of combined business/agricultural assets above nil-rate bands, but drop to 50% beyond that. Applies from April 2026. (gov.uk)
- IHT thresholds are being frozen until April 2030, and inherited pension pots will be subject to IHT from April 2027. (gov.uk)
- Carried interest – from April 2026 all carried interest will be taxed as trading profits under Income Tax (plus Class 4 NICs) with a 72.5% multiplier for qualifying portions. (gov.uk)
Implications for Business Owners and Entrepreneurs
Choosing a company vs partnership vs sole trader now hinges not just on operational and liability considerations, but on how each is taxed under the new CGT / IHT / carried interest rules.
- Entities planning for exit or sale should weigh the new CGT rates carefully—selling a business once CIR hinges on whether you can use BADR under its old rates. Timing of sale becomes critical.
- For fund managers or partners earning carried interest: structuring carried interest settlements in tax-efficient ways ahead of April 2026 could save significant tax.
- Agricultural businesses and farms: larger estates will see reduced relief beyond £1 million—structure holdings to spread value or trust assets if appropriate.
Actionable Steps to Optimise Entity Setup
- Plan exits or asset disposals before April 2026, when possible, to take advantage of lower BADR rates.
- Use holding companies or trust vehicles with an eye to how new rules treat trusts and distributions—non-residence and qualifying trust status now more important.
- Move carried interest calculations earlier where eligible; ensure any carried interest agreements are aligned with qualifying criteria to benefit from multiplier and framework.
- Estate planning: review ownership of business and agricultural property assets so that most value falls within first £1 million for full relief. Where asset value is above that, consider restructuring or gifting to spread value prior to revaluation.
- Keep on top of IHT thresholds and nil-rate bands; with freezing until 2030, inflation may push many estates into chargeable territory without actions.
Example Scenario
- Scenario A: Jane owns a farm worth £1.5 million combined with other business assets. Under new IHT relief reform from April 2026, only first £1 million gets 100% relief; remaining £500,000 gets reduced relief (50%). Structuring ownership or transferring £500K to family or trusts before relief reduces could preserve benefit.
- Scenario B: A startup founder selling shares in business in 2025 vs 2027. If sale occurs before April 2026, founder may use BADR at lower rates; if after, BADR has risen. Timing of transaction and capital gains liabilities will differ materially.
Takeaways
Entity setup decisions must now integrate:
- Timing of disposals and transfers (CGT & BADR)
- Asset valuation and structuring (for IHT reliefs)
- Carried interest contract terms and eligibility ahead of reforms
- Trust-based planning under the new domicile/residence regime
By staying ahead of these changes, entrepreneurs, farmers, and estate-holders can preserve tax efficiency, avoid surprises, and ensure that entity or asset disposals, succession plans, and exits are aligned with new UK tax rules.