I am a private equity executive with carried interest in a fund I manage. Is there a way to improve my tax position in respect of this carry, or is this prevented by the UK’s new tax rules aimed at private equity?
Even though the UK has tightened its tax treatment of carried interest and other interests in private equity funds, you should still normally be able to take certain steps to improve your tax exposure in respect of your carried interest; whether you take those steps before or after moving to the UK.
For example, if you are non-UK domiciled it may be possible to exclude your carried interest (and the sums arising from it) from UK inheritance tax (IHT) by arranging for it to be held in trust. For so long as assets remain in trust, they should be excluded from IHT in perpetuity; meaning it can be a useful vehicle for long-term estate and succession planning.
It should also be possible to reinvest the proceeds of the carry and roll up profits free from UK tax, even though the anti-avoidance rules may deem returns on the carry itself to arise to you for tax purposes. Steps can be taken to ensure you do not incur a “dry” tax charge on the carry (i.e. without receiving anything on which the tax arises), and that you can receive enough from the trust to pay the tax but without incurring a double tax charge.
Double taxation may also be a concern if you acquired the carry (or any other interest in the fund) at a point when you were tax resident elsewhere - in which case the other country may impose tax charges alongside the UK. Careful planning will be necessary to avoid this risk, ideally before you move to the UK; and also to avoid the risk of falling foul of the various pitfalls posed by the UK’s wide network of anti-avoidance rules.
For more information or advice, please contact Alex Tamosius, Senior Associate, in our Private Client team.
Senior Executives: thinking of relocating to the UK?
Considering the employment offer, negotiating the contract and package
- I’ve been offered a new role in the UK: what are the key terms that I should expect to see and which should I try to negotiate?
- By accepting a new role in the UK, I shall be treated as a “bad leaver” by my current employer and forfeit significant equity and deferred payments: is there anything that I can do?
- Will I be subject to tax on my worldwide income and gains if I become tax resident in the UK?
- I hear that it can be a common practice to have dual employment contracts: one in the UK, and the other abroad. What's this all about?
- I have some existing share options which have vested but I have not yet exercised them? What should I do about them?
Please do contact any member of our Sen Ex Advisory Group to suggest a question or to find out more about how we can help.
Senior Executives: thinking of relocating to the UK?
We answer common questions raised at key stages of the relocation process.
