The Budget’s focus on maintaining competitive corporation tax rates, alongside introducing targeted tax reforms, is expected to shape investment strategies. This has already prompted a surge in deal completions ahead of October 30, in anticipation of the expected capital gains tax increases.
In 2021, the then shadow chancellor announced plans to reform the tax treatment of carried interest—the share of profits earned by private equity managers—a measure that has now been implemented.
Starting in April 2025, the tax rate on carried interest will rise from 28% to 32%. Additionally, from April 2026, carried interest will be taxed under income tax rules and will also be subject to Class 4 national insurance contributions.
Additionally, new conditions will be introduced to access the carried interest regime, potentially aligning with European models by incorporating holding periods and co-investment requirements.
From October 30, 2024, the lower rate of Capital Gains Tax (CGT) will rise from 10% to 18%, while the higher rate will increase from 20% to 24%. Business Asset Disposal Relief (BADR) will also see a gradual increase, rising to 14% in April 2025 and 18% in April 2026.
These changes, combined with the government’s commitment to maintaining the headline corporation tax rate at no more than 25% until at least 2029, create a mixed outlook for investors. However, pre-Budget concerns about CGT aligning with income tax levels—amid speculation of rates between 33% and 39%—have proven to be overstated.
