The Labour government’s first Budget in Autumn 2024 introduced a wide range of tax changes, the effect of which has been felt keenly for those advising wealthy individuals.
From April 6 2026, fundamental changes to the carried-interest regime will come into force.
From this date, carried interest for UK taxpayers will be treated as deemed trading profits and therefore will come within the income tax regime, rather than being treated as capital gains.
Under the old regime, the rate was 28 per cent. From 6 April, the transitional rate of 32 per cent will be replaced by an effective 34.1 per cent rate for carried interest (once national insurance contributions are taken into account).
For internationally mobile professionals, this can sharpen the appeal of relocation ahead of a continuation transaction, particularly where substantial portions of carry are expected to be rolled rather than distributed
The new private equity regime has been designed to ensure non-UK executives undertaking investment management services in the UK pay an appropriate amount of UK tax on the profits of their deemed trade attributable to the UK, while at the same time ensuring the new regime does not make the UK a materially less competitive place to invest.
The new regime achieves this by allocating profits from carried interest in the UK on the basis of UK and non-UK workdays in current and prior years.
These provisions offer some interesting planning opportunities for UK resident senior PE executives who are expecting to realise material carry in the short to medium term and are willing to relocate to a different jurisdiction.
Indeed, this opportunity, combined with the higher headline rate of tax on carried interest as well as the increasingly hostile tax environment generally, is expected to act as further momentum for senior PE executives considering a move abroad.
Though we await data following the implementation of the new regime, expectation among advisers is that this will exacerbate, rather than stem, the tide of senior industry executives leaving the country for more advantageous tax regimes.
Relocation incentives intensify
Market dynamics within PE are reinforcing these incentives.
After an extended period in which carry has remained unrealised, improving market conditions are raising expectations of crystallisation.
For executives sitting on long-delayed carry, the prospect of triggering a significant UK income tax charge has sharpened the attraction of realising returns overseas.
The growing use of continuation vehicles has become a further catalyst.
As sponsors seek liquidity while retaining exposure to prized assets, continuation vehicles allow assets to be transferred into a new structure backed by fresh capital, while enabling existing investors and management to roll their economic interests forward.
This flexibility has made continuation vehicles particularly attractive in a slower exit environment, allowing sponsors to defer a full sale while demonstrating interim value realisation to investors.
From a corporate and executive perspective, continuation vehicles offer several additional attractions.
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