Some of the world’s biggest private equity firms are urging the UK government to water down proposed changes to the way dealmakers are taxed in the country.
Blackstone, KKR and EQT have raised concerns about the proposed reforms, while other large international firms are telling their employees to avoid spending time in the UK, according to people familiar with the matter.
Nervousness is growing within the sector that chancellor Rachel Reeves’ plan to start treating carried interest — the share of profits that private equity executives keep when they sell companies — as income could leave dealmakers liable to UK tax long after they move away from the country.
The European head of one large US buyout firm said their employees were avoiding moving from the US to London until the UK government provided more clarity.
“Some of the individuals I’ve spoken to say . . . ‘What is the tax basis? I don’t want to commit and make my decision until I know’,” the executive said, adding they had “low confidence” the government was listening to the industry’s warnings.
Another top 10 international firm also said its executives were hesitating to spend time in the UK, according to its response to a government consultation seen by the Financial Times, and that the proposals would hamper the group’s ability to operate in the country.
Michael Graham, funds tax partner at law firm DLA Piper, said he was seeing a similar trend. “According to several of our fund clients, management is advising employees from other jurisdictions to avoid visiting the UK until further clarification is provided under these new rules,” he said.
Carried interest is treated as a capital gain, meaning executives who receive it after moving away do not usually pay UK tax even if it relates to work they did while living in the country.
In 2021, the chancellor branded the regime a “loophole”, triggering industry fears that a Labour government would start taxing all carried interest at the top income tax rate of 47 per cent including national insurance.
Last year the sector mounted a well-resourced lobbying campaign, which aimed to highlight the risk to the UK’s competitiveness as a destination for investors.
The compromise that the chancellor announced at last October’s Budget was seen broadly as a win for the industry. From this weekend the carried interest tax rate will be increased from 28 to 32 per cent, while continuing to be treated as a capital gain.
From April 2026 the government is planning to reclassify carried interest as income, but the proposed system would still treat buyout profits favourably.
Carried interest that meets certain conditions would only be taxed at 72.5 per cent of the income tax rate, plus national insurance. This would result, according to the Office for Budget Responsibility, in an effective marginal tax rate of 34.1 per cent for additional-rate payers.
However, many buyout managers are balking at one particular detail of the government’s plans. The Treasury has said that from 2026 non-UK residents would be subject to income tax on carried interest “to the extent that it relates to services performed in the UK”.
This means a buyout manager living in Paris but spending one day a week in London, or a London-based fund manager who moves abroad and later starts receiving carried interest related to work they previously did in the UK, could become subject to UK tax, according to a top private equity tax lawyer.
Whether double taxation treaties would provide relief was not clear, the lawyer added.
One top 10 buyout firm is calling for a limit to the number of years for which the UK could collect tax on carried interest that an executive receives after moving away from the country, and a minimum number of days visitors must spend in the UK each year before being liable.
Firms headquartered in the US were “the most concerned”, the lawyer added, because of particular worries about how the new UK rules would interact with US carried interest and worldwide taxation regimes.
Blackstone has a lot on the line. The firm is building new offices in Mayfair that could accommodate more than 1,800 people. The firm already has roughly 600 working in London.
A top, London-based executive at another large US firm said “the popular view” was that the industry had got away with light reforms in the October Budget, but in fact the proposals were “disastrous” for the industry.
“In the past six months I spent three months travelling. When it comes down to it, will those three months be treated differently?” they said, adding that it was an administrative “nightmare to have to account for your time and where you were”.
“They should have just stuck with capital gain and put the rate up,” the executive added, noting that “moving it to income has meant there had to be a whole new consultation, and kept up the uncertainty” after the Budget. After a while, they said, “people start making their choices about where they want to build their careers”.
Michael Moore, chief executive of the British Private Equity and Venture Capital Association industry lobby group, said “continued engagement with government is vital to resolve the technical issues” raised by the reforms.
A Treasury spokesperson said: “The revised regime for carried interest will put its tax treatment on a fairer and more stable footing for the long term while preserving the UK’s competitive position . . . We continue to work with a wide range of expert stakeholders to ensure our reforms are robust and effective.”
Many UK-based private equity executives are also caught by the Labour government ending the “non-dom” regime, which allowed UK residents who declared their permanent home as being overseas to avoid paying British tax on their foreign income. This is prompting an exodus from London to the likes of Italy, Switzerland or the United Arab Emirates.
Several non-doms and their advisers said that Reeves’ move to end the use of offshore trusts to avoid UK inheritance tax at 40 per cent played a big part in their decision to leave.
Blackstone, EQT and KKR declined to comment.
Additional reporting by Harriet Agnew and Arash Massoudi
