The UK government has softened elements of its proposed overhaul of carried interest taxation, introducing a series of concessions aimed at assuaging concerns from private equity managers and safeguarding the UK’s competitiveness as a financial centre, according to a report by the Financial Times.
In a policy document released Thursday, HM Treasury confirmed it would abandon two previously floated measures: a mandatory co-investment requirement and a new minimum holding period, both of which had drawn strong opposition from the private equity community.
The revisions come in the wake of Chancellor Rachel Reeves’ April announcement to increase the carried interest tax rate from 28% to 32%, with plans to reclassify carried interest as income rather than capital gains from April 2026. Under the current draft framework, carried interest will be taxed at an effective rate of 34.1% – still below the top income tax rate of 45%.
Industry participants had raised concerns that the initial proposals would introduce excessive compliance burdens and undermine the attractiveness of the UK market. Global firms including Blackstone, KKR and EQT had pushed back against provisions that could result in non-resident managers being liable for UK tax on services rendered many years earlier.
Responding to those concerns, the Treasury confirmed on Thursday that UK services performed before the October 2024 Budget would be treated as non-UK activity for tax purposes. Additionally, individuals will now only be deemed to have performed UK services if they worked at least 60 days in the country during the relevant tax year.
Michael Moore, CEO of the British Private Equity & Venture Capital Association (BVCA), welcomed the revisions as a “pragmatic approach” that acknowledges the industry’s role in supporting growth and innovation. However, he flagged ongoing concerns around potential double taxation and said the BVCA would continue to work closely with the government.
Dan Neidle, Founder of Tax Policy Associates, characterised the changes as a “significant climbdown,” crediting the industry’s coordinated lobbying for securing what he called “big wins,” including the removal of the co-investment requirement.
Jennifer Wall, a Partner at BDO, said the revised proposals indicated that “the government has listened” and understands the strategic value of the private equity sector.
Treasury officials sought to characterise the changes as largely “technical,” though market participants view them as a meaningful shift in tone from the government’s earlier, more aggressive stance.
