BVCA Chair gives his views on the changes to carried interest
When Rachel Reeves stood at the despatch box to deliver her inaugural Budget, she knew she was balancing two priorities: securing the funding to support vital public services through a mix of cuts and tax rises, and promoting growth and investment by retaining the UK’s status as a leading location for global investors to allocate their capital.
It’s in that context that Labour was making decisions to reform the carried interest tax regime. On behalf of the industry, the BVCA has made a big push in the last three years to get our story across to key stakeholders, setting out the value our industry provides to the UK, and in particular how private capital supports and drives investment, growth, innovation, productivity and employment in the economy.
The BVCA team have been making two central arguments. First, it’s a fact that our industry makes an important contribution to the economy. Private capital backs businesses employing 2.2 million people across the UK and contributing 10% of private sector GDP. Second, in order to sustain the UK’s status as Europe’s biggest hub for our industry, any changes to the tax regime must be viewed in the context of our international competitors.
This has been supported by detailed policy work and engagement, including our highly impactful MP Connect programme, which showcases our industry at a local constituency level to MPs across Parliament.
I believe this work has been vital in increasing the understanding of the industry by political parties and by the government officials who advise Ministers. This comes across in the documents published alongside the Budget:
‘The government recognises that carried interest has unique characteristics which set it apart from other types of reward. It is a direct share of the profits of a fund, with a typically lengthy period between award and payout and a material risk of never being received. Those unique characteristics lead to a range of different international approaches to taxing carried interest.’
This shows that the Government has listened to and understood our arguments on the value of private capital and how important it is to the economy. The announcement recognises that tax treatment should take into account the long term, risk-based nature of private capital investment, to enable UK private capital to continue to flourish in the increasingly competitive race for global capital.
The announcement of further reforms from April 2026, where carried interest will be classified as trading profits under the income tax framework at a discounted rate, will be consulted on. It is important that these future changes result in a framework that continues to support growth and investment in the UK. Our industry will work with the Government as it consults on implementing these changes to ensure that any risks of reducing investment are mitigated.
I’d like to extend my thanks to Michael Moore and everyone at the BVCA who work so hard to represent our industry, and very importantly also to all the members who have provided support. It’s really a team effort. The industry still has a lot to do to get our positive story out to a wider audience and to demonstrate our societal contribution in the UK. It will be a continuing project over years, and one that goes well beyond the specifics around this week’s Budget. I’m very confident we can do this together, building on the foundations that we’ve collectively put in place.
Authored by Matthew Sabben-Clare
Senior Advisor, Cinven, and BVCA Chair 2024-25
