The Future of Private Equity Funds in the UK - Plain Sailing?

05 May 2021

Anyone navigating the choppy waters of the taxation and regulation of private equity funds over the past few years will know that the UK’s recent attitude to the funds industry has been mixed at best. In the wake of Brexit, competition between European jurisdictions for fund managers’ business is becoming more intense – for example, Ireland has introduced a new and improved Limited Partnership regime to attract more Private Equity managers, and a number of jurisdictions such as France and Italy have been making their tax regimes more attractive for fund executives. 

This means that setting a course to ensure a competitive environment for funds in the UK has become an increased area of focus for the Treasury. The latest indication of a major change of tack emerged in January 2021, with the ‘Review of the UK funds regime: A call for input’. This comes in the wake of the ongoing Asset Holding Companies consultation and a funds working party on VAT.

Tellingly, the focus of the call for input was very much the authorised funds regime. While there is plenty of scope to make the UK rules for authorised funds more attractive (see our response to the consultation), this arguably shows a lack of appreciation for the huge importance of the private funds sector to the overall funds infrastructure in the UK. Private Equity has seen a hugely increased tax compliance burden as well as substantial tax rises in recent years, and HMRC and Treasury will need to take reforms seriously if they are to change the prevailing winds taking fund managers to Luxembourg and elsewhere. 

Whether the winds turn fair for UK funds remains to be seen but one thing is clear – change is in the air.