Adapting to Significant Tax Reforms and Incentives in the UK and Europe

Key Considerations in 2025

Adapting to Significant Tax Reforms and Incentives in the UK and Europe

In 2025 the UK fund industry faces significant tax reforms with phased changes to carried interest and the non-domiciled regimes, alongside a new Corporation Tax Roadmap providing greater certainty for inbound investors. European tax authorities’ increasing focus on economic substance in cross-border investments is expected to result in enhanced scrutiny for funds with EMEA platforms and portfolios. Rising UK social security rates may affect executive compensation structures, whilst in line with global trends European tax policies (such as the UK’s ten-year infrastructure plan) increasingly seek to incentivise infrastructure investments.

UK Fund Manager Tax Reform: Carried Interest & Non-Doms

Developing Economic Substance Requirements

UK Tax Reform: Increasing Payroll Tax Burden

Pillar 2 Implementation and Effects

Tax-Incentivisation of Infrastructure Investment

UK Holding/Portfolio Companies: Increased Tax Certainty

Trends and themes to act on

Preparing for Tax Reforms: Following the major UK tax changes announced in the autumn budget, consider reviewing investment structures and financial models in light of upcoming changes to the taxation of carried interest and non-domiciled individuals, announced increases in UK payroll taxes and the new Corporation Tax Roadmap.
Managing Economic Substance Requirements: Ongoing monitoring and pre-emptive steps are advisable when operating European cross-border investment structures (across private equity, credit, real estate and other asset classes) due to the increasing risk of tax authority challenges based on divergent economic substance requirements.
Factoring Pillar 2 into Deal Processes: The evolving new global minimum taxation regime potentially impacts the full spectrum of private capital transactions (sponsor-side arrangements to LP investments to private M&A) and—given accounting-based thresholds and complex exemptions—requires monitoring on an ongoing basis and enhanced diligence measures for market transactions.