How are investors in a private equity fund taxed on their share of the profits?
Produced in partnership with Emily Clark of Travers Smith
How are investors in a private equity fund taxed on their share of the profits?

The following Tax guidance note Produced in partnership with Emily Clark of Travers Smith provides comprehensive and up to date legal information covering:

  • How are investors in a private equity fund taxed on their share of the profits?
  • Types of profit
  • Dividend income
  • Interest income
  • Chargeable gains
  • Non-UK source profits and gains
  • Filing returns and gathering information
  • Other UK tax issues and anti-avoidance provisions
  • Attribution of gains of non-UK resident companies
  • Transfer of assets abroad rules
  • more

This Practice Note sets out how the investors in a typical UK private equity fund might be subject to UK taxation on their share of the fund's profits.

One of the reasons for the popularity of the limited partnership as a structure for private equity funds is that English and Scottish limited partnerships are transparent for the purposes of income tax, capital gains tax and corporation tax. This look-through treatment enables partner-investors to invest collectively without adding an extra layer of taxation—instead, income and capital gains (or losses) arising to the fund are treated as arising to the partners as if they held the investments directly. This is important as, ideally, the investors’ after tax return should be the same as if they had invested in the assets directly. For more on the tax treatment of limited partnerships, see Practice Note: Taxation of limited partnerships.

The tax arising on the fund's profits in an investor's hands therefore depends on the nature of those profits. A private equity fund's profits are likely to include dividend income, interest income and capital gains. This Practice Note:

  1. summarises the UK tax treatment of each of these potential profit sources for typical investors ie UK resident individuals, UK resident companies and non-resident investors (UK registered pension funds, which also commonly invest in private equity funds, are broadly exempt