Stay informed about UK tax changes and private equity updates

The UK government is making moves to end tax breaks for wealthy expatriates and close a tax loophole on private equity performance fees. Chancellor of the Exchequer Rachel Reeves has announced plans to replace the outdated concept of domicile status with a shorter, four-year system starting in April 2025.

Private equity firms and other stakeholders have until August 30 to submit details to inform the tax reform, with a decision expected alongside the budget on October 30. The Labour government is determined to increase taxation on wealthy foreigners and buyout fund managers who receive performance fees.

Carried interest, which is taxed as a capital gain at 28%, has become a target for tax reform as the government aims to raise £565 million a year. The proposal to scrap the concept of domicile in favor of a resident-based system was initially set out by the previous Conservative government and adopted by Labour.

The government also plans to end the use of offshore trusts to avoid inheritance tax while protecting the UK’s position as a leading asset management hub. Industry leaders have welcomed the government’s statement and look forward to responding to the call for evidence on changes to the carried interest tax regime.

Despite its small size, the private equity industry has a significant impact on the UK economy, with executives making a total of £3.4 billion in carried interest in the 2020-21 tax year. Reeves has indicated plans to continue favorable tax treatment for private equity executives who put their own capital at risk.

Overall, the government’s tax reform efforts aim to create a fairer system that reflects the economic characteristics of carried interest and the level of risk assumed by fund managers. Stay informed with free updates on this developing story.