UK PE firms cautiously endorse Labour’s tax plans

The UK’s private equity (PE) industry has expressed cautious support for a proposed government plan to overhaul the tax treatment of carried interest but is seeking to mitigate its potential impact.

The British Private Equity & Venture Capital Association (BVCA) CEO Michael Moore endorsed the idea of requiring dealmakers to invest their own funds to benefit from a lower tax rate.

Michael Moore, chief executive of the British Private Equity & Venture Capital Association, said in a letter to the Treasury that a plan to require dealmakers to invest their own money in funds in order to qualify for a lower tax rate could work. However, he said, any changes should be forward-looking and not applied on funds already in operation.

The Labour government is set to announce detailed plans for reforming the carried interest regime in its budget on October 30. Potential measures include increasing the tax rate on carried interest—profits fund managers earn from asset sales—from the current 28 per cent to 45 per cent and introducing new co-investment rules.

These rules would require fund managers to put their own money at risk to qualify for tax relief.

The proposed reforms aim to raise an additional £565 million annually by reclassifying more carried interest as income. The BVCA has urged the government to engage with the industry and provide flexible transitional arrangements to avoid disrupting existing funds and investments.

There are concerns that significant tax increases could stifle investment, particularly for early-stage investors, and the BVCA has suggested that new and diverse managers who may lack upfront capital should receive some flexibility.

Labour’s plans come amid broader expectations for new wealth taxes, as Prime Minister Keir Starmer and Chancellor Rachel Reeves have highlighted the need for fiscal reform in response to the country’s dire public finances.

The BVCA also stressed the importance of consulting with industry stakeholders to ensure any changes support long-term investment and growth without impeding the sector’s vitality.