When we talk about choosing the best structure for your business, we are really talking about how ownership, tax, risk and future exits fit together. For many profitable, multi-owner firms, the question is no longer, “Should we incorporate?” but whether a limited company, limited liability partnership (LLP) or group restructure gives the better long-term answer. That has become more pressing with higher corporation tax, the new business asset disposal relief (BADR) rate from April 2025 and looming changes to inheritance tax (IHT) relief.
There are now around 5.6m private-sector businesses in the UK, of which 3m are not registered for VAT or PAYE. According to the Office for National Statistics (ONS) business population estimates (ONS, 2025), companies already make up over threequarters of VAT/PAYE-registered businesses, and that share keeps rising. Owners are clearly voting with their feet. Getting structure wrong can create unnecessary tax, restrict BADR at sale and reduce access to inheritance tax relief later on, so choosing the best structure is no longer a paperwork exercise – it is part of core strategy.
In this article, we compare limited companies, LLPs and group restructures from a tax, liability and succession angle, and explain how the latest BADR and IHT changes affect choosing the best structure for your next phase.
Why choosing the best structure matters
For limited companies, the main corporation tax rate is now 25% for profits above £250,000, with a 19% small profits rate below £50,000 and marginal relief in between. You can see the full bands in the official HMRC corporation tax rates for 2025/26. That makes profit extraction planning more important than ever.
LLP members are taxed broadly as self-employed partners rather than employees, so the same £100,000 of profit can land very differently in net-of-tax cashflow depending on whether it sits in a company or LLP. At the same time, the choice determines the following.
- Legal risk: Whether your personal assets are on the line if something goes wrong.
- Funding options: How easy it is to bring in investors or lenders.
- Exit readiness: Whether future share or interest sales qualify for the new 14% BADR rate from 6 April 2025, instead of the higher standard capital gains tax rate.
From 6 April 2025, qualifying BADR gains are taxed at 14% rather than the previous 10%, and the standard rate for most capital gains is 24%. The updated HMRC BADR guidance confirms the new 14% rate. That narrows the advantage of BADR, but the difference is still material when you are choosing the best structure for an eventual sale.
On top of that, reforms to inheritance tax business and agricultural property relief from April 2026 will cap 100% relief to the first £1m of qualifying assets, with 50% relief above that level in many cases. The government’s consultation on reforms to inheritance tax reliefs sets out how the new allowance interacts with trusts and business property. These changes mean structure and ownership now feed directly into future IHT exposure.
Limited company versus LLP – what changes in a restructure
For trading businesses with several working owners, the first big decision when choosing the best structure is often between a limited company and an LLP. On paper, both offer some form of limited liability, but the day-to-day tax and commercial experience is different.
In a limited company, profits are taxed inside the company first, then owners are taxed again on salaries, bonuses and dividends. That can still be efficient where substantial profits are retained for reinvestment, especially for businesses fully within the 19% small profits rate. Owners can smooth their personal tax bills by managing how much they extract each year, which helps cashflow and longer-term planning.
In an LLP, members are usually taxed as if they were partners. Profits are allocated and taxed on each member, whether or not cash is drawn, with income tax and Class 4 national insurance contributions (NIC) rather than corporation tax. That can be attractive for professional practices where partners want a direct link between effort and reward, but it offers less flexibility to leave profits in the business at a lower tax rate.
When we help clients compare a limited company versus LLP restructure, we usually look at the following.
- Current profits: Whether the firm sits in the small profits band or faces the full 25% rate.
- Reinvestment plans: How much profit needs to stay in the business for growth.
- Partner circumstances: Different ages, incomes and personal tax positions.
- Exit plans: Whether a share sale or asset sale is likely in five to 10 years.
Often, LLPs can work well for early-stage professional firms where members want simplicity and a clear link between profits and tax. As profits grow and owners start to consider succession or external investment, a limited company can make it easier to issue different share classes, create a holding company or prepare for sale.
Group restructures and holding companies
Once a business is established and profitable, choosing the best structure often means looking beyond a single company or LLP. A common step is to introduce a new holding company and create a group.
This can allow you to do the following.
- Ring-fence risk: Separate trading activity from valuable assets such as property or intellectual property.
- Plan for partial exits: Sell one trading subsidiary while keeping another under common ownership.
- Bring in new owners: Issue shares at holding-company level rather than directly in a trading entity.
For example, a profitable limited company that owns its trading premises might move the property into a new property company under the holding company, leaving the original company as a pure trading subsidiary. That can protect the property from trading risk and may help future buyers who prefer not to acquire bricks and mortar.
However, group restructures need care. You must consider stamp duty, capital gains tax, potential loss of BADR on future sales and how lenders or regulators view the change. HMRC has detailed anti-avoidance rules around transactions in securities and targeted rules that can treat some re-organisations as income distributions. This is where detailed modelling – not just a Companies House form – is essential before choosing the best structure.
How choosing the best structure affects BADR and IHT
BADR remains a key incentive for owner-managers and partners thinking about sale or succession. The new 14% rate from 6 April 2025 still compares favourably with the 24% standard rate, particularly given the £1m lifetime limit on qualifying gains. Independent analysis of the rate rise confirms the current 14% rate and the planned 18% rate from April 2026 for future disposals.
To qualify, you generally need to:
- own at least 5% of the ordinary share capital in a trading company or holding company of a trading group
- be an employee or officer of that company or group
- meet the conditions for at least two years before disposal.
That means share structure, employment status and timing all matter when choosing the best structure. For LLPs, the position is different – in many cases, a sale of partnership interests may not qualify for BADR in the same way as a share sale, so we often see firms considering conversion to a company or group structure several years before a planned exit.
On the IHT side, business property relief (BPR) has historically sheltered many family-owned shares from inheritance tax. From 6 April 2026, the reforms described in the government’s IHT relief consultation and subsequent Budget announcements will cap 100% relief on combined business and agricultural property at £1m, with relief above that limit often reduced to 50%.
For owners of successful, asset-rich companies or groups, that makes share structure, use of holding companies and the timing of transfers to the next generation far more sensitive. Restructuring now – for example, introducing a family holding company with different share classes – can support succession while keeping an eye on BADR eligibility and the future IHT cap.
Practical steps when choosing the best structure
If you are weighing up a limited company, LLP or group restructure, a good starting point is to put the commercial goals before tax. Then we can build the tax and legal structure around those objectives. Here are some typical steps.
- Clarify owner goals: Agree whether the priority is income now, future sale value, family succession or risk reduction.
- Map ownership and roles: Record who works in the business, who invests, and who might join or leave over the next five years.
- Model after-tax outcomes: Compare LLP, single company and holding company options on an after-tax cashflow basis, not just headline rates.
- Review BADR conditions: Check current shareholdings and roles against the BADR rules and timelines, especially given the 14% rate from April 2025.
- Factor IHT and BPR: Identify whether current or future values are likely to exceed the £1m 100% relief cap from April 2026.
- Check banking and legal terms: Confirm lender, lease and contract requirements before you change entities or transfer assets.
We often find that owners have already made good commercial decisions, but the structure has not kept up with growth. An early discussion, combined with clear modelling, can prevent nasty surprises and keep choosing the best structure as a positive, planned step rather than a rush before a sale.
If you would like a sense-check of your current structure, our team can walk through your options as part of our wider tax planning support.
Bringing it together when choosing the best structure
Choosing the best structure is not about chasing the lowest possible tax bill in one year. It is about aligning ownership, profit, risk and succession over the life of your business. For many profitable, multi-owner firms, that may mean moving from an LLP to a limited company, introducing a holding company, or tidying up share classes so BADR and future IHT relief can still apply.
The 14% BADR rate from April 2025 and the forthcoming £1m cap on 100% BPR from April 2026 both tilt the numbers. Waiting until a buyer is at the door leaves very little room to adjust shareholdings, build up qualifying periods or move key assets into the right part of a group.
If you are considering a limited company, LLP or group restructure, it is worth stepping back now and consciously choosing the best structure for the next decade – not just the next tax return. We can help you review your current position, model practical options and work with your legal advisers to implement any changes smoothly.