Tax

Welcome to the latest edition of the Weil UK Tax Digest, featuring a round-up of tax news over recent months and what to look out for in the coming months.

There were no headline tax rate changes or policy announcements at the Spring Statement delivered by Rachel Reeves on 3 March. However, the first half of 2026 brings a number of significant and long-awaited developments with a particular focus on the investment management sector. First and foremost, the reworked tax regime for carried interest trailed in previous editions is now in force with effect from 6 April 2026.

The new rules have been developed with industry input and remain broadly in line with the key proposals put forward by the Chancellor at the 2024 Autumn Budget, as described in our blog at the time. The key changes can be summarised as follows:

• Framework: historically, the UK has taxed carried interest receipts in accordance with the character of the underlying fund profits from which they arise, triggering income tax on income from debt returns and dividends and CGT at a special rate of 32% on return of principal and gains. Under the new regime, all carried interest is recharacterised as trading profit and is subject to income tax and self-employed NICs at 47%. Provided the underlying fund holds its investments for an average period of 40 months or more, this tax is multiplied down by 72.5% resulting in an effective tax rate of 34.075% regardless of source.
• Trading profits: aside from the change in tax rate, classifying carried interest as trading profits has a number of side effects – for example, the new rules could bring some taxpayers into the scope of the UK’s “payments on account” rules for the first time.   
• Short-term carried interest: under the old rules, where a fund held its investments for an average period of less than 40 months, all or part of any carry arising to a non-employee was treated as “income-based carried interest” and taxed as trading profit at 47%. That principle has been preserved and repackaged as “non-qualifying carried interest”, but now extends to employees as well.
• Extra-territoriality: the new framework extends the territorial scope of carried interest to non-UK resident taxpayers. Historically, a non-UK resident who performed part of their duties in the UK would be taxed only on a corresponding portion of any income-based carried interest they received. This has now been extended to apply to all carried interest, even if the fund holds its investments for 40 months or more. That extension is accompanied by complex new apportionment rules and protections.

Also of relevance to investment managers, towards the end of January the Supreme Court heard an appeal in a long-running dispute over whether certain individual members of BlueCrest Capital Management’s LLP should have been recharacterised for tax purposes as employees under the UK’s salaried member rules. While the Court’s decision has not yet been handed down, its view on several technical points is eagerly awaited – in particular, whether it will agree with the Court of Appeal’s narrow interpretation of when an individual’s influence over the business in question is sufficient to disapply the rules, a view which suggested that the rules are more restrictive than previously thought by many advisers and, indeed, previously accepted by HMRC in its published guidance.

With the start of the 2025/26 tax year, a number of other changes came into force, including:

• Business asset disposal relief: the tax rate for gains qualifying for BADR (previously known as “Entrepreneurs Relief”) increased from 14% to 18% (reducing the discount which it offers against marginal CGT rates from 10% to 6%); and
• Dividend tax rates: the basic and higher tax rates for dividends have increased by 2%, to 10.75% and 35.75%. These increases do not affect the additional tax rate, which remains at 39.35%.

As part of a wider multi-jurisdiction exercise, Weil’s tax team has collaborated with Luxembourg advisers Loyens & Loeff to produce the latest edition of our jurisdictional guides on Tax in Distressed Situations, covering important tax considerations for debt restructurings, enforcement, acquisitions of debt and insolvency proceedings from UK, US, French, Luxembourg, Swiss, Belgian and Dutch tax perspectives.

Stay tuned in to the Weil Tax Blog for all our latest thinking.