Leading private equity firms including Blackstone, KKR, and EQT are urging the UK government to reconsider sweeping tax changes that would reclassify carried interest as income. They warn that the move could damage the UK’s competitiveness and trigger an exodus of investment professionals.

From April 2026, carried interest will be treated as income to the extent it relates to services performed in the UK, exposing non-resident executives to British tax liabilities even after they leave the country. The effective marginal rate for high earners could reach 34.1%, up from the current 32% under capital gains treatment.

Executives from top international buyout firms have already started advising staff to avoid time in the UK while tax guidance remains unclear. One US-based firm said the rules could restrict its ability to operate in London, while a senior executive at another firm described the reforms as “disastrous,” adding that they create an administrative burden with unclear implications.

The reforms are part of a broader shift in UK tax policy under Chancellor Rachel Reeves. The October 2024 Budget was initially viewed as favourable by the industry, but the upcoming reclassification has reignited concerns about long-term tax exposure and the administrative complexity of compliance.

The British Private Equity and Venture Capital Association has called for ongoing dialogue to resolve technical challenges in the legislation.

Separately, the abolition of the UK’s non-dom regime is also prompting fund managers and high-net-worth individuals to consider relocating to jurisdictions such as Italy, Switzerland, or the UAE.