This Practice Note sets out the UK tax treatment of investors in a typical UK private equity fund as regards their share of the fund's profits. Summary of tax treatment One of the reasons for the popularity of the limited partnership as the vehicle of choice for a private equity fund structure is that English (and Scottish) limited partnerships are transparent for the purposes of income tax, capital gains tax (CGT) and corporation tax. This look-through treatment enables investors (who become limited partners in the fund) to invest collectively without adding an extra layer of taxation. Instead, income and capital gains (or losses, were that to be relevant) arising to the fund are treated as arising to the partners as if they held the relevant investments directly. This is important because, as with all forms of collective investment vehicle, the aim is that an investor’s after-tax return should be as close as possible to the after-tax return they would have got had they invested in the underlying assets directly. For more on

FORTHCOMING CHANGE relating to the tax treatment of carried interest: Following a call for evidence on the tax treatment of carried interest that ran over summer 2024, at Autumn Budget 2024 the government announced that it would introduce a revised tax regime for carried interest from 6 April 2026 that would sit within the income tax framework, subject to special rules to take account of the unique characteristics of the reward. A consultation on potential new qualifying conditions for access into the new regime followed, with a government response to this being issued in June 2025. Draft legislation for the new tax regime for carried interest was published on 21 July 2025, for inclusion in Finance Bill 2026. The new rules will have effect for carried interest arising on or after 6 April 2026. In the meantime, the capital gains tax rates applicable to carried interest were increased to 32% with effect from 6 April 2025. For more on this carried interest tax reform, including some commentary from legal

A secondary buyout (SBO) is a private equity-backed buyout of a business that has previously been subject to a buyout. SBOs are one method open to private equity funds looking to exit a buyout investment. While the incumbent private equity investor exits their investment in an SBO, the target business's existing management team are likely to stay in place post-SBO (although in some cases individuals may leave to be replaced by new individuals or, less commonly, a completely new management team may be brought in). For members of the incumbent management team that are staying on, an SBO will involve them disposing of interests they had previously acquired in the target vehicle (in the previous buyout) in exchange for consideration offered by the incoming private equity investor. This will, at least in part, involve the management team acquiring an interest in the SBO acquisition vehicle. This Practice Note examines the key UK tax issues arising for these individuals. Where, instead, an SBO involves a new management team being brought in, the tax issues arising

The key attraction of a private equity-backed buyout, both for the private-equity fund that is investing and for the target’s management team, is the potential for realising a significant return on a future exit. A number of exit routes from a buyout investment are available, with the most common options being a sale to another business active in the same industry, a flotation (IPO), or a secondary buyout (SBO). The option chosen will ultimately depend on factors such as the appetite of public markets for a flotation of the business and the existence or otherwise of any willing buyers for the business. Management may have significant input into which option is chosen, and may prefer to seek further private equity investment through an SBO if the business model and general market conditions suit. A secondary buyout (SBO) is, therefore, a private equity-backed buyout of a business that has previously been the subject of a private equity-backed buyout. An SBO will involve the incumbent private equity investor in the business exiting their investment,

Inheritance tax and personal injury trusts It is a common misconception among practitioners that using one type of personal injury trust or another, which is not also a disabled person’s trust, confers some inheritance tax (IHT) advantage. People often feel that discretionary trusts might do this in particular. In fact, for a self-settled personal injury trust, it does not matter what type of trust is used. The gift with reservation of benefit rules will apply and mean that the value of the trust fund is treated as part of the settlor’s estate for IHT, regardless of whether the trust fund falls into the estate on death or not. That is even the case for disabled trusts. From an IHT point of view, an ill-considered personal injury trust can actually make things worse. Where an amount over the nil rate band (£325,000 for England and Wales 2026–27) is settled into a relevant property trust, ie a discretionary trust or life interest trust, which is not eligible to be a disabled persons trust, there

This year’s annual round-up reviews some of the most significant developments of 2017 and previews what is on the horizon for 2018. This includes: the change in the Budget timetable and the publication of three Finance Bills, the introduction of the new corporate interest restriction (CIR) rules, changes to the rules on corporation tax loss relief, and the Supreme Court’s judgment in the Rangers case. Also included are updates on LexisNexis®’s content, including news of exciting developments from the past year and what is coming up in the next 12 months. Reviewing 2017 Budgets and Finance Bills What happened? 2017 saw the publication of no fewer than three Finance Bills, as a result of a combination of the general election and the shifting of the annual Budget from the spring to the autumn. The first of these Finance Bills became the Finance Act 2017, the second became the Finance (No 2) Act 2017 (F(No 2)A 2017), and the third will be enacted in 2018 as the Finance Act 2018. What

Arrangements are “tax arrangements” if, having regard to all the circumstances, it would be reasonable to conclude that the obtaining of a tax advantage was the main purpose, or one of the main purposes, of the arrangements. “Arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

Restructuring & Insolvency analysis: The liquidator of Ethos Solutions Ltd (the Company) was unsuccessful in his bid for relief under section 423 of the Insolvency Act 1986 (IA 1986) against various beneficiaries and participants of a failed tax avoidance scheme. The decision turned on the components of a claim under IA 1986, s 423. The court held that a transaction which was entered into with the intention that no tax liability should arise did not have the required ‘purpose’ for IA 1986, s 423; it did not, on the facts, constitute an intention to prejudice a claim for that tax liability. Written by Hannah Drozdz, legal director PSL at Gateley Legal.

Maintained by Adrian Shipwright and Julian Hickey at Burnell Chambers Introduction to tax compliance Charities are not exempt from taxation but they do have the benefit of a number of tax exemptions (subject to complex anti-avoidance provisions). Well-run charities usually do not suffer any direct taxation. A charity must complete and submit tax returns in three specific circumstances: • if served with a notice requiring it to file a return • if it has taxable income, gains or profits not covered by a relief or tax exemption, for example income generated from trading that is not within the charitable trading exemption (see the Tax treatment of the charity guidance note) • if it has used income or gains for non-charitable purposes or non-qualifying investments The type of Tax Return required depends on the way the charity is set up. If a charity does not declare how much tax it owes correctly and on time, HMRC may charge a penalty and interest. HMRC periodically publish a Charities Newsletter which includes topical issues relating to charities, taxation

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