UK Autumn Budget Leaves Private Equity Tax Regime Untouched

The UK's 2026 Autumn Budget made few changes to the private equity tax regime, a result advisers described as a relief for firms that had feared major rate increases. Following a 2024 budget that raised capital gains and carried interest rates and a 2025 budget that largely spared private markets, Chancellor-level finance minister John Healey left capital gains tax (CGT) rates, carried interest and inheritance tax unchanged, according to PitchBook's coverage. Nick Fagge of McDermott Will & Schulte said that none of the feared CGT increases materialised. Stuart Marcy, head of private equity at Gerald Edelman, characterised the budget as "steady-as-she-goes," noting that sponsors remain focused on deal flow and exits, and that a "huge backlog" of companies for sale is unlikely to be affected by the budget.

The main new measures take effect in 2027 or later. Founders' relief, from April 6, 2027, will tax qualifying gains of up to £10 million at 10%, compared with the 18% BADR rate, with a consultation running until November 30. Eligibility is restrictive: founders need at least 25% original ownership held for five years and five years of continuous UK tax residence, and the company must have at least £10 million in turnover, 15 full-time employees, and meet two of three growth tests. Matt Katz of Buzzacott said the relief is "much narrower than the headline suggests," and advisers expect it to create a divide between founders and later-joining managers holding enterprise management incentive options.

The BADR lifetime cap halves from £1 million to £500,000 from April 2027. Advisers said the effect on PE-sized deals is small; Marcy estimated the extra tax on transactions with enterprise values from £5 million to £100 million-plus at roughly £30,000. The reform of distribution taxation, from April 2028, is the item advisers are watching most closely. It targets arrangements such as inserting a new holding company and using a capital reduction to extract value, as well as demergers and shareholder loans from non-UK companies. According to White & Case's Arun Birla, the government's response says co-invest returns and genuine fund investment returns will keep capital treatment, though draft legislation has yet to be published. Charlotte Sallabank of Katten Muchin Rosenman flagged drafting risk, noting that broadly worded rules could make it difficult to determine whether a genuine exit is caught.