The UK government has introduced key concessions to its planned overhaul of the carried interest tax regime, easing pressure on private equity executives amid concerns over competitiveness. 

The changes follow intense industry lobbying and come after Chancellor Rachel Reeves announced in April that carried interest would be taxed as income rather than capital gains from April 2026, raising the rate from 28% to 32%.

Despite the headline increase, the revised framework allows fund managers to benefit from an effective tax rate of 34.1%—still significantly below the 45% additional income tax rate. Two key proposals, which had sparked backlash from leading firms such as Blackstone, KKR, and EQT, have been scrapped.

The Treasury confirmed it would not implement a mandatory co-investment requirement, which would have forced fund managers to commit more personal capital to qualify for the favourable rate. It also dropped plans to extend the minimum holding period beyond the current 40 months.

In addition, the government has scaled back tax obligations for non-UK residents, narrowing the definition of what constitutes UK-based services. Services performed before October 2024 will not be subject to UK tax, and individuals will only fall under the rule if they work at least 60 days a year in the UK.

Michael Moore, CEO of the British Private Equity & Venture Capital Association (BVCA), welcomed the Treasury’s “pragmatic approach” but warned that concerns over potential double taxation remain. Dan Neidle, founder of Tax Policy Associates, described the outcome as “a significant climbdown,” crediting the private equity sector’s “highly organised lobbying” for securing major wins.

The revised regime reflects the government’s attempt to balance revenue needs with safeguarding the UK’s appeal as a private equity hub.

Source: Financial Times

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