Entity Setup
Navigating UK Entity Setup: Choosing Structure with the New Capital Gains & Inheritance Tax Rules
With changes to CGT rates, inheritance tax reliefs, and capital gains for small business owners, entity selection requires up-to-date strategy.
By NomadicTax Research Team • 5-8 min read • November 22, 2025
## 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](https://www.legislation.gov.uk/ukpga/2025/8/part/1/enacted?utm_source=openai))
- **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](https://www.gov.uk/government/publications/autumn-budget-2024/autumn-budget-2024-html?utm_source=openai))
- **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](https://www.gov.uk/government/news/chancellor-chooses-a-budget-to-rebuild-britain?utm_source=openai))
- IHT thresholds are being frozen until **April 2030**, and inherited pension pots will be subject to IHT from April 2027. ([gov.uk](https://www.gov.uk/government/news/chancellor-chooses-a-budget-to-rebuild-britain?utm_source=openai))
- 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](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))
## 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
1. Plan exits or asset disposals **before April 2026**, when possible, to take advantage of lower BADR rates.
2. 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.
3. Move carried interest calculations earlier where eligible; ensure any carried interest agreements are aligned with qualifying criteria to benefit from multiplier and framework.
4. 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.
5. 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.